A Shift in Enforcement Emphasis for the Department of Labor

The Employee Benefit Security Administration (EBSA) has outlined its enforcement priorities and guiding principles – and there’s a definite shift in emphasis. 

It did so via a Field Assistance Bulletin (FAB) – which is an internal, albeit public, official directive to EBSA investigators and staff on how to enforce the Employee Retirement Income Security Act (ERISA) in real situations.    

The overall shift in emphasis is a focus on violations of loyalty, rather than prudence. At a high level, this suggests a lowered focus on things like technical mistakes, good-faith process errors, and “gray-area” interpretations – and a heightened emphasis on self-dealing, hidden conflicts of interest, misuse of plan assets, and acting for reasons other than participants’ benefit. 

The FAB, coming direct from Assistant Secretary Daniel Aronowitz himself, notes that the Department of Labor (DOL) “periodically reviews and evaluates the responsiveness and effectiveness of its enforcement and regulatory efforts to stay on mission.”[i] It outlines four priorities of focus that it says will “ensure that the Department’s enforcement authority is used in a manner that promotes transparency, consistency, and the rule of law.” 

So, what’s changing? 

Focus on Issues with Larger Financial Impact 

Under the direction in the FAB, EBSA will now prioritize criminal cases to address the most significant harm to the employee benefits system. That means the highest priority will be on targeting individuals and entities who, acting in bad faith, improperly administer plan benefits or misappropriate (or aid in the misappropriation of) assets – including conduct designed to enrich themselves or other goals unrelated to participants’ best interests. And here, it spells out “such as the promotion of environmental, social, or governance objectives.”  

Not that violations of the duty of prudence will be overlooked. The FAB explains that the costliest breaches of the duty of prudence tend to be accompanied by concomitant loyalty breaches.  

A Timeline for Routine Investigations 

To ensure that EBSA’s investigations are timely and responsive, the FAB says the Director of Enforcement (or designee) must conduct quarterly reviews of any civil investigation that has remained open longer than the timeframes designated in the bulletin and take appropriate corrective action to ensure that EBSA is meeting this enforcement priority.  

Of note, the FAB says that routine investigations involving less complicated issues, such as delinquent employee contributions, disclosure and bonding violations, should be completed within 18 months, unless there are exigent circumstances that are communicated to the Director of Enforcement.  

Regulate via Regulations, not Enforcement 

Acknowledging that circumstances may arise requiring EBSA to act to fulfil its mission to protect the security of the employee benefit plan system, the FAB states that “novel legal theories or interpretations of ERISA should not be first articulated during enforcement actions.” That means enforcement based on the plain language of ERISA’s text, clearly established DOL guidance, or “clearly established” case law.  

Significant Enforcement Activities Now Subject to Senior Review 

The FAB states that the Deputy Assistant Secretary for Program Operations, the Director of Enforcement, and each Regional Director must inform EBSA’s Assistant Secretary (or his delegate) of significant enforcement activity – including proposed settlements and voluntary corrective actions – at least two weeks before any pertinent deadline or proposed action, if possible. 

What This Means for You 

The shift in enforcement emphasis is surely good news for plan fiduciaries, most especially the stated timeline for smaller issues – some of which have been known to consume extended periods of time and effort relative to the financial impact. This FAB is consistent with other recent actions taken by this DOL which are supportive of plan fiduciaries.  While that is positive news to share with retirement plan committees, the shift in enforcement emphasis shouldn’t be seen as an indicator that those other matters are unimportant, or that they won’t at some point be a factor in a DOL audit – much less a focus of potential litigation.