Recent publications provide insight into possible areas of focus – ML BeneBits

The U.S. Department of Labor (DOL) maintains a comprehensive investigation program to examine employee benefit plans for potential ERISA violations. Under the Biden Administration, the DOL’s ERISA enforcement activities and investigations remained a high priority. Therefore, ERISA plan fiduciaries and service providers can expect the DOL to continue its ever-evolving enforcement program targeting both fiduciaries and non-fiduciary service providers.

Current reports from the DOL provide insight into its current official and unofficial enforcement priorities and can help plan trustees and in-house counsel to track the DOL’s enforcement activities.

In February 2024, the DOL released a fact sheet summarizing its enforcement activities and highlighting $1.4 billion in recoveries in fiscal year 2023. In late March, President Biden signed a $1.2 trillion spending package that included an allocation of $191.1 million to the DOL to be used to fund the fiscal year 2024 budget. Both the fact sheet and the DOL statements supporting its budget requests provide valuable insight into the areas the DOL will focus on in future investigations.

The DOL also reports on its national enforcement projects on its website. These official priorities include the following:

• Protecting benefit distribution (focusing on distressed plan sponsors, abandoned plans, and accommodating the DOL’s Terminated Vested Participant Project, which focuses on missing participants)
• Planning for investment conflicts (focusing on issues related to the compensation received by fiduciary service providers and conflicts of interest)
• Healthcare enforcement (focusing on mental health equity and compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA), coverage of emergency services under the Affordable Care Act, fees charged by providers, and fraudulent operators of multi-employer benefit arrangements)
• Employee stock ownership plans

Our thoughts

Our key conclusion from the fact sheet, budget and enforcement projects identified, as well as recent experience with DOL investigations, is that the following areas may be of particular focus in future DOL investigations:

• Internet security and problems with participant data. After issuing guidance expressing its view that ERISA plan fiduciaries have a responsibility to protect plan assets and information from cybersecurity risks, the DOL has prioritized conducting research on these issues. We have advised and continue to advise many DOL inquiries on these issues. The DOL has publicly reiterated that it is focused on these investigations. For example, in previous budget requests, such as the one for fiscal year 2024, the DOL has expressed its desire to “provide sufficient investigative resources.” . . Internet security.”
• Missing participants, an issue that has been in focus for years (which we have already focused on). previously written). This is a longstanding DOL focus that we expect to continue because (1) the DOL lists it as an official DOL enforcement project and (2) the DOL fact sheet notes that the missing participant investigations accounted for a significant portion of its enforcement collections. (“Refunds for terminated vested participants (e.g., individuals who no longer work for an employer but are eligible to receive benefits from an employer-sponsored other work-related retirement plan) played a large role in these results.”) We have seen that the DOL has expanded these gaps to include participant assessments of defined contribution plans and dishonored checks.
• Illiquid and difficult to value assets, including private equity and alternative asset classes (e.g. cryptocurrency), in both defined benefit and defined contribution plans. We have seen an increasing focus on DOL issues related to these asset classes, particularly defined benefit plans. The DOL has also signaled interest in questions surrounding these types of investments. For example, in previous budget requests, the DOL expressed a desire to “provide sufficient investigative resources for risky investment practices involving illiquid and difficult-to-value assets.” Similarly, in 2022, the DOL publicly expressed its opposition to cryptocurrencies in ERISA plans and threatened investigations into plans invested in this asset class.
• Mental Health Equity and Enforcement of the MHPAEAincluding enforcing non-quantitative treatment restrictions.
• Proper Use of Plan Forfeits. This is an area where civil litigation is becoming more common, but the DOL has also examined the issue of proper use of plan collections and found negative results.
• Evidence of insurability problemsThis means situations in which insurance premiums are collected to provide ERISA insurance benefits, but the coverage is ultimately unavailable to the participant because proof of insurability was never collected.

While this list is not exhaustive, it does highlight possible areas of focus. Compliance and benefits teams may want to focus on these areas, as non-compliance in these areas can result in extensive scrutiny in the event of a DOL investigation.

How we can help

We stand ready to assist organizations and plans that are currently under investigation by the DOL or have questions about the DOL’s enforcement activities. Our offerings include an internal audit risk assessment of DOL investigations to anticipate and avoid potential disruptions and/or liability risks from these DOL investigations. As part of this internal audit service, we conduct a review prior to a DOL investigation to identify regulatory compliance issues and gaps. Following the internal audit, we can help resolve any compliance gaps identified.

If you require assistance, please contact the authors of this post or your primary contact at Morgan Lewis.