New England Biz Law Update
The Department of Labor has launched an effort to increase enforcement actions by its Employee Benefits Security Administration, the agency in charge of administering and enforcing ERISA regulations.
The agency saw a record number of enforcement actions in 2011. It closed nearly 3,500 civil and more than 300 criminal cases, recovering $1.39 billion in civil penalties and obtaining 75 criminal convictions.
The number of EBSA enforcement personnel will increase from 913 to 1,003 in fiscal 2013.
The increased enforcement comes as the EBSA looks to revise its definition of the term “fiduciary” in ERISA regulations, broadening its meaning. Under the original 1975 regulation, a fiduciary is defined as someone providing investment advice for a fee, either directly or indirectly, on regular basis and pursuant to a mutual understanding that the advice would be the primary basis for the investment decision.
The new proposed rule would remove the “regular basis” and “primary basis” requirements, giving broader protection to both employees who participate in retirement plans and to the businesses that offer them, according to the Labor Department.
DOL officials said the changes are meant to reflect the fact that participants often rely on outside financial advisers to protect retirement benefits.
Phyllis C. Borzi, Assistant Secretary of Labor for the EBSA, testified before Congress that the revised rule would help smaller businesses by making outside advisors more accountable.
It would make it “more difficult for these advisers to steer small employers to investment options that pay the adviser higher fees,” Borzi told members of the Senate Special Committee on Aging at the hearing. “It also would hold the advisers responsible for losses that result when they recommend imprudent investments. Under the current rule, such advisers can avoid responsibility for these losses and leave the small employers as the sole fiduciary and therefore the sole responsible party under ERISA. The proposed regulation will hold the advisers accountable for imprudent and conflicted advice, and the harm this advice causes to plans and participants.”
