Dealing with Documentation in a DOL Investigation

It’s a situation dreaded by every service provider to a retirement plan: an investigation by the Department of Labor (DOL).

It’s not the greatest news, and according to law firm Drinker, Biddle & Reath, the DOL has been turning up the heat on service provider investigations. For a number of years it’s been targeting registered investment advisers, and has also begun to target broker/dealers and recordkeepers, the law firm said in a webinar presentation Wednesday.

According to Drinker Biddle, the investigations seem to be part of the DOL’s ongoing Fiduciary Service Provider Compensation Project, whose purpose is to focus on “the receipt of improper or undisclosed compensation by employee benefit plan consultants and investment advisers.”

The main point is to make sure that plan fiduciaries and plan participants receive comprehensive disclosure about service provider compensation and conflicts of interest. The Employee Benefits Security Administration (EBSA) will also conduct criminal investigations of potential fraud, kickback and embezzlement involving advisers to plans and participants.

But there are ways to survive, which Drinker Biddle, detailed in “Surviving DOL Service Provider Investigations,” its webinar explaining the process and outlining some steps to proceed prudently.

One way that investigations of service providers arise is when the DOL is looking into a retirement plan and finds an issue, and then moves over to the service provider, noted Fred Reish, chair of the Financial Services ERISA team, at Drinker, Biddle & Reath. “They found problems in conflicts of interest, self-serving or self dealing areas,” Reish said.

Get set for the documentation request: lots and lots of it. Part of the investigation is the request for documentation, typically a large quantity. Documents can range from those that identify, list or schedule the company’s benefit plan clients. For each client, they’ll want the name, employer identification number and address of the plan sponsor; the name of the plan; the plan number; the dates of services for the plan; the name or names of the plan trustee, investment manager and custodian. (Note that for trustee, investment manager and custodian there can be more than one name.)

The DOL will ask for agreements executed by the provider that detail services provided to employee benefit plan clients. More documents the provider will be asked for: those that constitute or describe an agreement between the company or an affiliate and an employee benefit plan client.

The DOL will ask for information about how the plan’s assets were invested. These documents can describe how advice about the value of securities or other properties was rendered to the plan. They can also describe how recommendations about the advisability of investing in, purchasing or selling securities or other property were made.

Experience in handling these investigations is important, Drinker Biddle advised. First, negotiate with the DOL the timing of responding to the requests. Next, negotiate the volume of materials to be provided. Then, “pre-audit” the materials to see what they are likely to show. Consider requesting an administrative subpoena to attempt to contain the volume of documentation.


Provide a Sample of Information

Bruce Ashton, an attorney with Drinker, Biddle & Reath, suggested that the service provider might want to ask the DOL to issue an administration subpoena. He pointed out that this part of the request for documents is looking for extremely detailed information on the plan. “In our experience, we try to typically have the client put together information as best it can, and then ask the DOL to select a sample from the list,” Ashton said. “Then the client can put together more details about that selected list, as opposed to every single client.”

For a recordkeeper that could be tens of thousands of clients, Ashton said, and it is unrealistic to expect the provider to provide this, or for the DOL to review it. “Instead of two moving trucks of documents, try to get DOL to select a sample and provide information on a reasonably small sample,” Ashton advised.

The firm made the following observations about the DOL’s request for documents:

  • Deadline for producing documents may be short;
  • Much of the information may not be readily available;
  • Some types of documents may not exist;
  • DOL requests tend to be over-inclusive; and
  • Providers need to understand the implications of the questions and the responses.