One of the key EBSA National Enforcement Projects (that is, a project driven by the national, not the regional, EBSA offices) is the “Plan Investment Conflicts Project.” You’ll hear DOL staff refer to it as the PIC project, and many of you have already run into it-maybe even without knowing it. It is the “next generation” of fiduciary compliance programs that the DOL has developed over the years, with this one building on those past programs which had looked at compensation conflicts, 408(b)(2) compliance and 404(a)-5 disclosures.
What makes this program different? It appears to be using standard, plan level investigations to instigate reviews of selected practices of large financial service companies, as opposed to having to open large service provider investigations to get to the answers being sought. To most plans, what their investment platform provider does in the operation of its plan is just a black box. What it takes to actually run these platforms in today’s market requires a high level of technical sophistication which is well beyond the ken of most plans to understand, much less review.
There is also a critical dearth of public information out there which plan fiduciaries would need were they to do a significant review of those platforms. For example, did you realize that the Schedule C to the Form 5500 does NOT require the platform to disclose the amount of revenue sharing the provider receives from the plan investments? Schedule C merely requires that a formula be described, and the typical fiduciary has little ability to generate an accurate number from that formula (the proposed Form 5500 revisions, now on hold, would have remedied that). Another example is the use of sub-transfer agent fees. The SEC Rule 30e-3, discussed in my last blog, also seeks to find more information on how mutual fund sub transfer agent fees (including those generated off of ERISA plan investments)are being utilized, and to whose benefit. That information is not currently available to the fiduciary.
There has been some frustration in the past on DOL audits, where the investigator would often feel the need to hold someone responsible for something that was clearly under the control of the plan asset investment platform and not the plan itself. What seems to be happening now is that a practice of the investment provider which is uncovered in a plan audit may be referred to the EBSA National Office, where its resources are used to coordinate and assist in reviewing the practice of the platform-including between EBSA Regional Offices.
This Project is actually consistent with the growing notion that retirement plan investment platforms have become commodities, and sophisticated ones at that, for which the platform should bear greater responsibilities instead of the sponsor. That notion has begun to take root, for example, with it showing up in proposed MEP legislation. However, re-balancing these responsibilities will not be an easy task and may eventually require either statutory or regulatory change. But it does looks like the question is now being joined.