How will the federal budget affect your costs?

2011 Federal Budget’s Impact On 401(k) Plan Sponsors

The impact of the 2011 budget battle between the President and Congress was felt significantly by the Department Of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA), the primary regulator of ERISA.  EBSA investigations were left in a holding pattern for most of the 2011 fiscal year, as investigators did not know what, if any, money would be available to conduct plan investigations.

Like all federal agencies, EBSA is bound by its own strategic planning, and a successful year is measured by the number of fiduciary violations and monetary recoveries it collects.  In order to justify its proposed operating budget for next year, EBSA must still produce results in the current fiscal year; regardless of the budget constraints it has endured.

To catch-up, EBSA will likely focus on those plans which have a history of being the most persistent violators in hopes of precipitating more enforcement actions and collections.  The likely target…401(k) plans.  According to the DOL’s website, in fiscal year 2010, 82 percent of the investigations EBSA closed on retirement plans funded by employee contributions found a violation.  The most common violation involved delinquent employee deferral contributions.  However investigators are always on the lookout for other prohibited transactions, reporting and disclosure violations, and general imprudent administration issues.  With more than 700,000 defined contribution plans in the U.S., there is no shortage of potential investigations.

There is no doubt that EBSA is behind the pace to reach the 4,356 investigations it predicted for 2011.  In a regulatory environment that has been customized in recent years to ramp up enforcement by expanding regulatory provisions and adding new enforcement personnel, it is not likely the agency will be found sitting on their laurels.  EBSA needs to make up ground and do so quickly.  This will likely result in a flood of 401(k) focused investigations within the next few months.

If you get an examination letter or have questions concerning the DOL audit process please contact your Lockton service team.

Fiduciary Risk Management:  Compliance Services

Sam Henson, JD  l  Jessica Skinner, JD

Securities offered through Lockton Financial Advisors, LLC a registered broker-dealer and member FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, a SEC registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.

Nothing in this message should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton’s compliance services group are not privileged under the attorney-client privilege.

Circular 230 Disclosure: To comply with regulations issued by the IRS concerning the provision of written advice regarding issues that concern or related to federal tax liability, we are required to provide to you the following disclosure: unless otherwise expressly reflected herein, any advice contained in this document (or any attachment to this document) that concerns federal tax issues is not written, offered or intended to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the IRS or promoting, marketing or recommending to another party any matters addressed in this document or any attachment.

About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
This entry was posted in Executive Benefits, Health & Welfare, News & Updates, Retirement. Bookmark the permalink.

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