J.P. Morgan Fined $4M for Recordkeeping and Outsourcing Failures

The SEC penalty addressed recordkeeping issues including the early deletion of 47 million emails.


The Securities and Exchange Commission has ordered J.P. Morgan Securities LLC, a subsidiary of J.P. Morgan & Co., to pay a $4 million fine and to cease violating recordkeeping requirements under securities laws.

The SEC found that J.P. Morgan had begun deleting communications that they were no longer legally required to maintain from the 1970s and 1980s, according to a filing by the SEC. During this process, employees of J.P. Morgan deleted records in 2019 that had been created early in 2018, and therefore not past the 36-month period in which they are legally required to maintain those records.

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The SEC noted that J.P. Morgan had outsourced recordkeeping functions to an unnamed vendor. According the regulator, that vendor had assured J.P. Morgan and FINRA that communications that are legally required to be kept, such as those younger than 36 months, were coded in a way that made it impossible to delete them, even deliberately.

This function was not working on many communications from early 2018, and 47 million emails were permanently deleted in the troubleshooting process from approximately 7,500 employees, according to the SEC.

The regulator says the missing emails limited the scope of investigations and other legal inquiries.

“In at least twelve civil securities-related regulatory investigations, eight of which were conducted by the Commission staff, J.P. Morgan received subpoenas and document requests for communications which could not be retrieved or produced because they had been deleted permanently,” the SEC wrote.

J.P. Morgan Securities wrote that it has since updated its information policies. Now the firm codes communications to be deleted in-house and trains employees to never attempt to delete legally protected communications without approval from a senior information officer.

J.P. Morgan Securities is registered as a broker/dealer and,  violated Section 17(a) of the Exchange Act. They had previously been fined $125 million by the SEC in December 2021 for separate recordkeeping failures.

PEP Growth Slows as Startups Fold

An IRS clarification that expanded audits for PEPs may be a factor for some providers in leaving the market.

The growth of pooled employer plan registration has slowed in 2023 even as the industry gears up for more small and midsized businesses to introduce new retirement plans, according to an industry expert.

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There were about 350 PEPs registered with the DOL halfway through 2023, showing a decline in the pace of rapid growth of registrations compared to prior years, according to Robb Smith, president of RS Fiduciary Solutions, PEP-HUB and PEP-RFP. Smith, who tracks PEP registration on the DOL’s EFAST website, noted around 170 registered PEPs at the end of 2021, and about 300 at the end of 2022.

The slowdown doesn’t mean pooled plan providers aren’t continuing to bring PEPs to market, Smith says, but that even as new plans emerge, more are pulling out of the market due to lack of uptake from plan sponsors. Some of the pullback, he notes, came after a clarification this year by the Internal Revenue Service that expanded the audit requirements for PEPs.

In a February report posted in the Federal Register, the IRS and DOL clarified that PEPs with 100 participants or more are subject to audit, rather than the 1,000-participant threshold some interpreted in the Setting Every Community Up for Retirement Enhancement Act of 2019, which first made PEPs a retirement plan option. Instead, regulators kept the audit rule of having 100 or more participants the same for PEPs as they do for single-employer retirement plans.

Smith says the threat of an audit that could cost a pooled plan provider in the range of $10,000 to $20,000 likely hastened the closure of some of the smaller upstarts.

“The audits are an additional cost,” he says. “If a PEP has not reached critical mass regarding the number of participants and assets, they may want to consolidate into another PEP.”

Maturing Space

David Levine, co-chair of the Groom Law Group’s plan sponsor practice, agrees that some PEP providers may have been “caught a little flat-footed” by the IRS guidance. But overall, he doesn’t see the auditing clarification as a driver of consolidation.

“A lot of the pooled plan providers that I work with expect to have more than 1,000 people in the plan,” he says.

Levine does, however, see consolidation in the space as being linked to maturation of the market. “You’ve seen that some PEPs have gotten traction, some have not, and two years into this people are asking, ‘does this make sense anymore?’” he says. “You are seeing some consolidation and reshuffling in this space.”

Levine expects PEPs to continue to see growth among his clients as “another solution in the toolbox” for smaller plans, alongside the proliferation of individual plan options from various small plan providers.

Wealth Connection

PEP consultant Smith says he continues to see growth in the retirement plan vehicle from registered investment advisories who are linking wealth management with participant retirement savings. These RIAs, he says, are working with small or mid-sized business owners who may see the value in starting a workplace plan through a PEP, or transferring an existing plan to the vehicle.

“RIAs want to have that arrow in their quiver,” he says. “If they are asked about a PEP, or someone comes in and has a business with retirement plans, they want that option along with a single-employer plan.”

Smith says PEP-HUB is advising small RIAs and their small plan sponsor clients to two options in particular.

One is what PEP-HUB calls an “open PEP,” which are pooled plans on the market that are accepting new plan sponsors, but that also have enough adopting employers and participants that “auditing fees are minimized.”

A second option is joining a Group of Plans, or GoPs, which brings multiple plan sponsors under one 402(a) fiduciary. This setup can reduce administrative burdens and costs for a small plan sponsor.

Overall, Smith says PEPs still need a better benchmarking and analysis process for plan sponsors. Unlike single-employer-plan providers, he says PEPs do not yet have the proper analysis or prudent selection process.

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