DOL Service Provider Investigations (Posted May 15, 2001) Technical Tip 12: The following question and answer were from the DOL Q&A Session at the 2000 ASPPA Annual Conference: In the PWBA’s Strategic Enforcement Plan, it states that service providers, including third party administrators, will be a primary target for investigative activity. Why is that? What have been the historical results of the PWBA’s investigations of service providers? What are the specific types of violations that the PWBA will be focusing on? How does the DOL define "Plan Service Provider" for the STEP Program? Does this include recordkeepers, insurance companies, attornies, investment companies, brokers, etc.? In addition to administrators and actuaries? DOL Response: Investigation of plan service providers is one of the three national investigative priorities. Investigations of plan service providers offer the opportunity to address abusive practices that may affect more than one plan. By PWBA focusing its resources on plan service providers, it can address violations involving many plans, often resulting in larger recoveries for more plans and participants. This approach is a mechanism whereby PWBA can leverage its resources and obtain the maximum impact for the participants and beneficiaries. As the Strategic Enforcement Plan indicates, the term "plan service provider" includes an person or entity which provides a direct or indirect service to an employee benefit plan for compensation. Third party administrators, administrators, accountants, attorneys, and actuaries are plan service providers. Also included as third party service providers are financial institutions such as banks, trust companies, investment management companies, as well as others that manage or administer, directly or indirectly, funds or property owned by employee benefit plans. Specific types of violations that PWBA will be focused on include the failure to provide services to the plan for the compensation, excessive or undisclosed administrative expenses, and imprudent investments made by investment managers. One of PWBA’s most recent cases involving a service provider is the Capital Consultants, LLC (CCI) case out of our San Francisco Regional office. The DOL was successful in appointing a permanent receiver and freezing the assets of CCI and preliminarily barring the principals from doing business with any ERISA plans. CCI is a registered investment manager with the SEC and was responsible for providing investment services to more than 60 Taft-Hartley plans. The allegation is that CCI violated ERISA by investing $150 million in a series of imprudent loans causing the plans to lose over $100 million as well as charging the plan excessive fees on the entire amount of the loans although the investments had declined in value. Caveat: The answer was drafted by Fred Reish and Brad Huss, the program moderators, based on their understandings of discussions with four senior officials of the Pension and Welfare Benefits Administration (PWBA) of the U.S. DOL. As a result, it does not represent a formal or binding position statement by the PWBA. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.