DOL Audits/Company Stock

[Guest erisafried]

Just discovered that a client has drawn some interest from the DOL regarding its 401(k) plan. The plan is of decent size (a few thousand participants) and permits company stock investments. The agent has asked for the usual laundry list of plan documentation, which we are in the process of collecting. However, we just got what I took to be an unusual request from the agent. As many public companies have been doing, the company recently assessed its stock option practices to verify that it didn't have any backdating problems -- didn't find any. Plan sponsor put out a press release to that effect. Now, the DOL is asking for back-up for the investigation.

My initial inclination is to tell the DOL to buzz off. They don't have jurisdiction over stock option plans, and it was not immediately apparent what relevance any of this could have for the 401(k) investigation. As I thought about it, the only basis I could come up with was as a sort of offshoot from the Enron situation. If the plan sponsor actually did have backdating problems and put out a bogus "all is well" press release that was subsequently shown to be inaccurate, presumably the jack-booted SEC and DOJ troops would soon be knocking down doors and cracking heads. This might have have a negative effect on the value of company shares, including those in the 401(k) plan. Seems like a bit of a reach to me, particularly since the DOL is not in a position to do anything about options backdating issues nor is it really (IMHO) qualified to assess whether the accounting and securities issues involved were correctly analyzed. Still, I can see the issue, and it seems to be in line with the positions they've taken in the "stock drop" cases.

I have since heard that the DOL has actually been doing some prospecting in this area for some of the companies that have reported backdating issues. Moving outside of that to check up on companies that have not had backdating issues suggests that the DOL may have too much time on its hands.

Has anyone had any experiences of this sort with the DOL lately? How have you handled -- cooperative or not? Usually, I'd be cooperative with the DOL, but I am not really inclined to faciliate a fishing expedition in this area.

[Guest erisafried]

Bueller? Bueller?

I suppose it is a good thing that no one seems to have had any experience with this issue. Just for anyone who's interested, I have informally confirmed that the DOL is making more of a habit of asking for this sort of documentation but thus far only where the 401(k) plan under investigation permits company stock investments. The reason is basically as I stated in my original post. You need to be careful about releasing non-public information to DOL in this area, particularly if the information was generated by attorneys -- otherwise, you'd risk waiving the attorney-client privilege.