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Peter Gulia

Does anyone check whether a new customer's executive has been barred from serving as a fiduciary?

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Many court decisions about a theft from an employee-benefit plan include an order that a wrongdoer is barred from serving as a fiduciary of an employee-benefit plan.  But how (if at all) is such an order practically enforced?

Am I right in guessing a TPA might not spot a problem?  Leaving aside a 3(16) TPA, an ordinary service provider might not be a fiduciary, and might have no duty or obligation to guard against an ineligible person's service.  And if a TPA runs a check on its new customer, would the TPA's check spot this problem?

If a Form 5500 annual report includes an ineligible person's name as a signer or authorizer, does anything in EBSA's error-checking or post-filing review catch a problem?

 

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2 hours ago, Fiduciary Guidance Counsel said:

Am I right in guessing a TPA might not spot a problem?  

Most likely yes.

2 hours ago, Fiduciary Guidance Counsel said:

Leaving aside a 3(16) TPA, an ordinary service provider might not be a fiduciary, and might have no duty or obligation to guard against an ineligible person's service.

We are not a 3(16) TPA, but we have some language in our service agreement regarding truthful representations from the sponsor.  Most TPAs probably have similar language in their agreements.  Is it enough to fend off a member of the plaintiffs bar if they have a juicy case on their hands?  Probably not.

2 hours ago, Fiduciary Guidance Counsel said:

And if a TPA runs a check on its new customer, would the TPA's check spot this problem?

We ask for information on prior plans of the sponsor.  The level of detail we get varies.  If someone wanted to hide it they probably could.  

2 hours ago, Fiduciary Guidance Counsel said:

If a Form 5500 annual report includes an ineligible person's name as a signer or authorizer, does anything in EBSA's error-checking or post-filing review catch a problem?

Error-checking or post filing review?  I highly doubt it would flag all John Doe's because one John Doe was enjoined from serving as a fiduciary.  What might be able to catch it is EFAST.  I would assume that they ban or suspend the credentials of the person enjoined from serving as a fiduciary in the future, and if they tried to register again it might catch that.  I really don't remember the steps and information they require in the registration process, but I would be surprised if they didn't throw in a "have you ever been convicted of XXX or have your XYZ suspended yada yada yada".

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It seems to me no TPA wants to contract itself into a position where it has a duty to monitor whether an employer's agents - such as an owner, officer, or employee - has authority to deal with the plan.  

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RatherBeGolfing, thank you for the helpful information.

As I suspected, it seems likely the practical enforcement depends mostly on happenstance.

If someone barred from service as a fiduciary starts a new business, establishes a retirement plan, and serves as the plan's fiduciary (especially if the business has no other executive), a TPA behaving correctly might transmit a Form 5500 report and we doubt that EBSA's computers would detect that someone barred from service as a fiduciary is serving.

I don't suggest that a TPA should have any responsibility; I'm only observing a weakness in the systems.

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Or maybe we're all supposed to rely on the new-found integrity of a barred individual that leads him/her to refrain from serving as a fiduciary because, you know, it was just an honest mistake the last time....

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For investment professionals, brokercheck is a good idea ---please see below:

 

 

USING BROKERCHECK

Details on a broker’s background and qualifications are available for free on FINRA’s BrokerCheck website.

Using BrokerCheck, you can search for a brokerage firm or individual broker by name or registration number, and link to state regulators’ websites.

For Individual Brokers, BrokerCheck Will Tell You:

  • Where The Broker Works Currently
  • The Broker’s Employment History For The Past 10 Years, In And Outside The Brokerage Industry
  • What Licenses The Broker Holds And Where The Broker Is Registered
  • The Qualification Exams The Broker Has Passed

BrokerCheck Also Will Tell You Whether The Broker Has Been:

  • Charged Or Convicted Of Any Criminal Felonies
  • Charged Or Convicted Of Any Investment-Related Misdemeanors
  • Subject To Any Industry Disciplinary Actions Or Investigations By Regulators
  • Involved In Any Investment-Related Civil Actions Or Proceedings
  • Named In Any Consumer-Initiated Complaints, Arbitration Proceedings, Or Civil Law Suits
  • Cited For Failing To Pay Judgments Or Liens
  • In Bankruptcy Proceedings
  • Terminated By An Employer Following Allegations Of Misconduct Or Failing To Supervise Subordinates

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EBSA posts an announcement when someone is barred from serving as an ERISA fiduciary or if there is any negative action taken against a person or company.  A Google search should be able to identify any such instances for a particular individual.

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