Compliance February 13, 2024

EBSA Recovered $1.4B in Retirement, Health Benefits in ’23

Head Lisa Gomez points to education and outreach growth as important outcomes, along with recovered funds and relief.

Reported by

The Employee Benefits Security Administration recovered $1.44 billion in direct payment to plans, participants and beneficiaries in 2023, the regulator announced Tuesday.

In an annual fact sheet summarizing recoveries from enforcement actions and complaint resolutions, EBSA, a division of the Department of Labor, reported that $854.7 million in recovery came from 731 civil investigations, with 505 (or 69%) resulting in monetary resolutions or other corrective actions. Another $444.1 million came from resolving complaints, $61.2 million from recovering abandoned plan assets and $84.5 million from its voluntary fiduciary correction program.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Lisa Gomez

“[The DOL is] doing everything we can to invest in American workers and to prioritize a number of different things,” says Lisa Gomez, assistant secretary of labor and head of EBSA, noting the three pillars of the organization under President Joe Biden as: creating good jobs, enforcing workplace protections and empowering workers and their families to get their benefits. “We are meeting those goals by working on these recoveries and outreach with workers,” she says.

Defined benefit pension plan recoveries for people no longer working for an employer but still entitled to the benefit made up a large portion of funds from investigations. EBSA’s enforcement program assisted 5,690 terminated vested participants in DB plans, collecting $429.2 million in total. The amount represents “lifetime annuity payments or cash-out lump sum balance payments, plus interest on distributions paid as either retroactive lump sums or in actuarially adjusted future annuity amounts,” EBSA noted.

The enforcement program also reported 352 instances of non-monetary relief in civil cases, including barring 41 individuals from serving as fiduciaries, improving missing participant procedures for 44 plans and making 34 corrections involving service providers for health plans covered by the Employee Retirement Income Security Act of 1974, according to the fact sheet.

EBSA investigations led to indictments of 60 people for crimes related to employee benefit plans, the firm noted. The regulator conducts most criminal charges with other federal law enforcement agencies, with indictments issued for plan officials, corporate officers and service providers.

Speaking Retirement

As an example of specific enforcement activity, the regulator noted that staff recovered more than $230,000 in plan contributions to a population of exclusively Spanish-speaking employees by tracking down participants via phone calls, emails and letters.

“When EBSA told [one participant] we had recovered $31,000 that her husband was owed, she said they had been struggling to pay his health expenses and the recovered funds were a ‘miracle,’” the regulator wrote in the fact sheet.

Gomez says such results are the work of “dogged” and “determined” staff, along with the prioritization of language capabilities.

“Trying to speak retirement and health is like a language in itself,” she says. “It’s very hard for anyone to understand, and then when you couple in not having someone available to speak with you in whatever your comfortable language is, that just makes it even more difficult.”

Gomez also highlighted the $444.1 million in benefits obtained by resolving about 197,000 informal complaints through EBSA’s benefits adviser program. She notes that when an adviser resolves an inbound call or email from the regulator’s “Ask EBSA” website, it not only helps the caller, but it prevents the issue from eventually moving to an investigation, which brings further “red tape” and time.

Another key point of pride at EBSA was improving education and outreach, which Gomez says have improved during her tenure, while noting she is a “cheerleader” for the staffers doing the work.

EBSA logged 2,159 outreach events for workers, retirees, employers, plan officials and member of Congress, 904 of which were for underserved communities, and some of which were conducted in languages such as Spanish, Chinese, Haitian Creole, Polish, Tagalog and Vietnamese. Some of the outreach was geared toward educating employers about ERISA obligations, while others were for dislocated workers facing job loss.

“We are really trying to broaden our reach to all different communities, with a particular focus on underserved communities,” Gomez says. “I’m really excited to see these numbers going up.”

$12.8 Trillion Mandate

Gomez noted the efforts of a department that is “relatively small” when compared to other government agencies. Meanwhile, she notes that potential budget cuts could further erode staffing and resources.

“We are at risk,” she says. “It’s definitely public knowledge that we are underfunded and that things are not looking like they would get better without intervention; they’re going to get worse, and we’re not going to be able to provide these types of services.”

In November 2023, the Government Accountability Office issued a report noting that EBSA’s budget has largely remained flat over the last 10 years, even as the agency’s responsibilities have grown. Gomez says she will continue working to get the funding the department needs, while also “coming up with a Plan B,” as needed, to be prepared. The department’s funding is part of a number of ongoing budget battles that are yet to be determined.

EBSA currently oversees about 2.8 million health plans, 619,000 other welfare benefit plans and 765,000 private pension plans that cover 153 million workers representing an estimated $12.8 trillion in assets.

Compliance February 13, 2024

Retirement Security Proposal Addresses ‘Significant Gaps,’ EBSA Official Says

PLANADVISER interviewed Tim Hauser of EBSA on the retirement security proposal.

Reported by

Tim Hauser says the Department of Labor’s retirement security proposal, sometimes called the fiduciary proposal, is not the same as the proposal made in 2016, as some critics have suggested.

The latest iteration of the proposal has been the subject of widespread debate and controversy since it was first proposed in October. Hauser, the deputy assistant secretary for program operations of the DOL’s Employee Benefits Security Administration, offered insight into why the Department of Labor continues to pursue it.

The proposal would modify the test for determining fiduciary status for retirement advice such that certain one-time recommendations, such as annuity sales, investment menu design and rollovers, would be considered fiduciary advice under the Employee Retirement Income Security Act.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

DOL’s Case

Hauser explains that the proposal essentially says that if you are presenting yourself as acting in an investor’s best interest, “you should be held to that standard.”

Applying fiduciary status to recommendations made on a “regular basis,” a component of the current regulation that would be scrapped by the proposal, is “under-inclusive,” Hauser says. As an example, he says that if an adviser had been advising a client for years outside of a retirement context, then advised them on buying an annuity or a rollover with retirement assets, that would not be subject to fiduciary duties of prudence and loyalty under ERISA.

He adds that many annuities are “complicated products,” and investors often find themselves “very dependent on insurance people to explain these things to them.” As a consequence, “it is very easy for [investors] to buy something that they don’t understand.”

Hauser says many annuities have this problem, identifying indexed-linked annuities as an example. These annuities may use multiple indices, exclude dividends or have caps and buffers on their performance that partially de-link them from the index, all of which could affect the money an investor can expect to receive from the product.

Any adviser who self-identifies as a fiduciary or has discretionary authority over plan assets would be a fiduciary under the proposal.

A third element would also trigger fiduciary status under the proposal: if the professional “makes investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest.”

Why is the Proposal Necessary?

One common objection to the proposal is that it is redundant, because it overlaps with Regulation Best Interest, enforced by the Securities and Exchange Commission. Reg BI requires investment advisers to offer advice in the best interest of their client; mitigate and disclose conflicts; and tailor their advice for that client. Opponents of the DOL proposal argue that should be satisfactory in the context of retirement plan rollovers.

Additionally, the National Association of Insurance Commissioners’ model regulation, adopted by more than 40 states, requires insurance agents to act in the best interest of their clients in annuity sales.

Hauser responds that the DOL “tried to design this to work closely with how Reg BI is designed” and acknowledges the “delta there isn’t huge.” However, Reg BI is limited only to securities recommendations made to retail investors. Therefore, it does not address other assets, such as real estate or insurance and banking products, and “significant gaps still remain.”

Since Reg BI only applies to retail investors, it also does not cover investment menu designs sold to plan sponsors. Hauser highlighted a comment letter from Morningstar to the DOL that argued plans sponsored by small businesses could be grossly overpaying on plan fees and would benefit from fiduciary duties being imposed. Brian Graff, the CEO of the American Retirement Association, also endorsed this specific element of the proposal at a December 2023 hearing for the same reason.

The NAIC regulation, on the other hand, is quite different from the DOL proposal, Hauser says, and DOL is “filling a very real gap here.” Specifically, the NAIC model does not include any forms of compensation in its rules on conflict mitigation, and “these are exactly the things you would think of when thinking of conflicts.”

“We take conflicts much more seriously,” Hauser says, and the DOL proposal would “make sure you aren’t creating incentive structures that incentivize sales that are worse for the customer and best for you.”

Why is This Proposal Different From Past Proposals?

Critics of the DOL proposal also say it essentially is the same as another proposal, made in 2016, that was vacated by the U.S. 5th Circuit Court of Appeals. In that case, the court ruled that in order for a professional to be a fiduciary under ERISA, the professional must have a relationship of “trust and confidence” with the client in question.

Hauser says the retirement security proposal is a “very different proposal” from the rule the 5th Circuit vacated. The previous rule would have covered any communication to a retail investor, whereas the current proposal focuses more on the nature of the relationship between an adviser and client.

He highlighted several other differences between this proposal and the previous one, including that the new proposal does not make insurance companies fiduciaries when their insurance products are sold by independent agents (only the agent would be) and that the new proposal would not limit arbitration agreements.

The new proposal, Hauser says, emphasizes the nature of the adviser-client relationship and limits itself to those with “trust and confidence.”

For Hauser, the core of the proposal is, “If you hold yourself out as acting in somebody’s best interest based on their individual circumstances, then that’s what you should do.”

«