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CCH® PENSION — 10/21/10

EBSA needs to do more to protect plan assets from conflicts of interest: Inspector General report

EBSA needs to do more to protect plan participants and beneficiaries from conflicts of interest in service providers, according to a report issued by the Department of Labor's Office of Inspector General (OIG), Office of Audit.

According to the OIG report, EBSA has taken several actions to evaluate and reduce risk of harm to plan participants and beneficiaries from conflicts of interest in service providers. For example, EBSA has: (1) developed two new regulations regarding fee determinations and disclosures and is requiring this information be reported to EBSA; (2) followed up on the 2005 Securities and Exchange Commission (SEC) report on conflicts of interest and initiated 12 specific investigations; (3) worked with the SEC to develop guidelines for plan fiduciaries to use in selecting and monitoring specific service providers; and (4) implemented the Consultant Adviser Project, which concentrates resources on improper, undisclosed compensation by certain service providers.

While these actions go a long way toward creating transparency in plan activities and improving protections for plan assets and participant benefits, the report said that EBSA needs to do more to protect plan participants and beneficiaries from conflicts of interest in service providers. Specifically, the reports contends, EBSA needs to address other critical regulatory areas, such as broadening the definition of fiduciary status for investment advisers, and requiring disclosure of all conflicts of interest and consideration of these conflicts of interest by plan fiduciaries when selecting service providers.

The OIG report notes that the "narrow definition of a fiduciary and the lack of regulations dealing with conflicts of interest has hampered EBSA's enforcement program." For example, while the SEC reviewed 24 pension service providers and took action on 13 instances of inadequate disclosure of conflicts of interest, EBSA, under its regulations, could not take any enforcement action on the inadequate disclosure to pension plans.

OIG recommendations

In its report, the OIG recommended that EBSA: (1) broaden the definition of a fiduciary for investment advisers and (2) develop regulations requiring disclosure of all conflicts of interest and consideration of conflicts of interest in selection of service providers. The Assistant Secretary for the Employee Benefits Security Administration, Phyllis Borzi, agreed with the finding and recommendations.

Source: Department of Labor, Office of Inspector General, Office of Audit, Report No. 09-10-001-12-121, September 30, 2010.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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