DOL Targets Small Plans

Think the Department of Labor (DOL) only cares about the big plans? Think again. Regardless of the size of your plan (assets and/or participant count), the DOL treats all violators the same.

The DOL recently announced there were three more cases in which they initiated legal action on behalf of plan participants:

In the first case Perez v Ferguson et al the DOL alleged the fiduciaries to the Industrial Surfacing Corp 401(k) Plan, which had assets of less than $500,000, failed to forward $47,636.44 in employee pre-tax deferrals to the plan from May 2010 to April 2011. The company ceased operations in 2011 and was dissolved in 2012. The DOL is seeking that Ferguson restore all loses to the plan, including lost opportunity cost, resulting from fiduciary breaches for which he is liable and correct the prohibited transactions. Since the plan was terminated, the DOL is requesting an independent fiduciary be appointed to administer and terminate the plan as well as distribute the assets.

The second case is Perez v Fisher et al. The DOL filed a complaint alleging David Fisher and Fisher & Partners Structural Engineers, Inc. as fiduciaries of the SIMPLE IRA Plan, failed to forward $9,640.96 in employee pre-tax contributions and $21,852.94 in employer contributions to the Plan from January 2008 to January 2011. As a result of the DOL’s interaction, a judgment was entered against the Plan Sponsor for $33,409.80. This judgment included both employee and employer contributions, as well as lost opportunity costs. In addition, the company will be removed as fiduciaries of the Plan and prevented from serving as fiduciaries for any Plan subject to ERISA.Harris v. Koresko et al, resulted in U.S. District Court for the Eastern District of Pennsylvania granting the DOL’s injunction. The District Court agreed with the DOL’s allegations that harm was done by the Pennsylvania-based fiduciaries of a Welfare Plans sponsored by employers nationwide, to the plans’ participants. The defendants, their agents, employees, service providers, accountants, attorneys and any other party acting on the direction of the defendants were removed from their positions held with the Single Employer Welfare Benefit Plan Trust (SEWBPT) and/or the Regional Employers Assurance League Voluntary Employees’ Beneficiary Association Trust (REAL VEBA). An independent Fiduciary was appointed to obtain an inventory of assets and to distribute the assets of the plans accordingly. The defendants were enjoined from serving as administrator, fiduciary, officer, trustee, custodian, counsel, agent, representative or consultant or adviser of the plans or employer arrangements participating in the SEWBPT and/or the REAL VEBA.

Fiduciary duties are the same whether the Plan has $275,000 or $8.5 billion in plan assets. Failure to transmit contributions, regardless of the amount, is a breach of Fiduciary responsibility. Plan Sponsors need to set up an ongoing review process to be sure all administrative procedures are followed. If an issue arises, prompt action must be taken to (i) correct the issue (ii) if employee contributions and or loan payments are involved the participants must be made whole (iii) document the issue and the process put in place to prevent the occurrence in the future.

Setting up internal controls to monitor the plan operation is not only prudent; it may help to avoid litigation and costly judgments.

Written By: Teresa J. Leonard

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