Recently, the Employee Benefits Security Administration announced indictments against two separate employee benefit plan employees for embezzlement. In one case, the TPA will spend prison time and make financial restitution of over $700,000 for making a false statement on the Form 5500. In the other case, the company vice president will have five years’ probation and must restore more than $186,000 to the people from whom he diverted funds.
These cases bring home the extreme importance of making sure that all parties involved with your employee benefit plan have the highest integrity with fiduciary responsibility. The DOL is also getting involved with a broader proposed definition of ‘fiduciary’ aimed at exposing undisclosed fees, misrepresentation of compensation agreements and biased values of plan investments. The proposed definition of a fiduciary under ERISA includes any person that gives advice, appraisals or recommendations regarding securities or property in the plan. In addition, if the person acknowledges themselves as a fiduciary or has any authority or control over the administration of the plan, meets the basics of the Five Part Test (even for short term advice) or receives a fee for advice, then they may be deemed a fiduciary and held accountable in their role in the plan.
A person would not be considered a fiduciary if he or she is only providing general information or if that the person discloses that they are providing a platform of securities from which a plan fiduciary may select and designate investment alternatives. Selling securities or other property to a plan does not make a person a fiduciary.
A public hearing in Washington, D.C. will be held on March 1 (and March 2, 2011 if needed) to discuss the new definition. For more information see the DOL news release: http://www.dol.gov/ebsa/newsroom/2010/ebsa122210.html