Plan sponsors: We didn’t make the fiduciary threat up, it’s real

Many of my great friends in this industry are due to making connections through LinkedIn. The groups section have always been a great meeting place for likeminded professionals in the retirement plan industry. Those likeminded individuals such as myself were always critical of an industry that had no transparency and rampant conflicts of interest.

Most of us in these 401(k) groups had very similar views, how this lack of transparency put plan sponsors and fiduciaries at risk.  There was one individual who wasn’t a third party administrator, broker, financial advisor, or having anything remotely to do with the day to day administration of 401(k) plans or any other retirement plan.

This fellow insisted that people like my good friend James Holland and I were selling fear, that plan fiduciaries had no real threat in the exercise of running a retirement plan. This fellow wanted proof that plan sponsors of all sorts of sizes were actually at risk.

Well if he wasn’t banned by many of these LinkedIn groups, I’d let him know about an interesting article I read.

Groom Law Group had an interesting article concerning Department of Labor audits. Jennifer Eller from Groom noted,  “During fiscal year 2012 (October 1, 2011 – September 30, 2012) EBSA closed 3,566 civil investigations. Of these, 2,570 (72.1 percent) resulted in monetary recoveries totaling $1.27 billion. These recoveries included $911 million in prohibited transaction corrections; $188 million in plan assets restored to plans, and $12.2 million in voluntary fiduciary correction program filings. The Solicitor of Labor filed 100 civil lawsuits (out of 218 referred).”

While you may scoff that there were only 3,500+ investigations, what you can’t scoff at was that more than 70% of these adults resulted in a recovery and only 25% of these audits occurred because of a complaint from a plan participant. So that means 75% of these investigations were likely random.


With 72.1% of these audits resulting in a recovery (2,570 audits out of 3,566), that means the average recovery per audit was something north of $494,000.

While many of these investigations dealt with health and welfare plans, the threat that a retirement plan can be audited and subject to some sort of financial recovery should not be discounted. The likelihood that the DOL will increase their audits because of fee disclosure is likely.

People like James Holland and I didn’t make this stuff up. The threats are real. The punishment that neglectful plan sponsors receive is real. With a 72% chance that you have to chalk up some dough after a DOL audit, is it really worthwhile for plan sponsors not to take their job seriously? Just ask the DOL who made over a billion in recoveries.

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