Employer not depositing employee deferrals - does TPA report to the DOL?

PamR · June 29, 2022

I have a client that has stopped depositing the employee deferrals. There have not been any deposits since January of 2022. We had to beg and do manual entries to get some of the payrolls in that did go in. It's a very small doctors office and the plan is safe harbor and new in 2020, the year she started the practice. The plan has automatic enrollment and there were employees that have become eligible in 2022. We have emailed, texted and called and we aren't getting any response. We have sent a certified letter letting the doctor know that we are resigning. The question is should we report our client to the DOL for not depositing the payrolls? We are signed on as a Fiduciary on the Investment Advisory side, we are also the TPA, but not a 3(16) so we aren't a fiduciary in that capacity. Part of me wants to report it, but then I guess I can't say with 100% certainty that there were deferrals withheld that haven't been deposited, I guess only someone in the office would know that for sure. I'm curious to hear what others think they would do in this situation. Thanks in advance.

ratherbereading · June 29, 2022

Same situation many times. No we didn't report it to the DOL. We had a client or two that we fired for that. Up to them to fix it. I would just resign from the plan and go on.

Belgarath · June 29, 2022

24 minutes ago, PamR said:

but then I guess I can't say with 100% certainty that there were deferrals withheld that haven't been deposited

I wouldn't report it regardless, but even if I were otherwise inclined to report it, I REALLY wouldn't report it when you don't even know if there's a PT involved. Just my 2 cents worth.

Peter Gulia · June 29, 2022

Without stating any conclusion or point of view, here’s another mode for analysis:

Even if you consider the possibility that the plan’s administrator furnished proper notices to everyone eligible and not one did not opt out, the facts you describe suggest circumstances in which a prudent fiduciary might not close its eyes to the obvious, and, absent the other fiduciary’s written assurance of facts that would show no breach, might further investigate the facts. The investment adviser should want its lawyer’s advice about how to evaluate the situation to consider what to do next.

With your lawyer’s advice, consider:

Of the TPA and the investment adviser, is one of those companies or operations a fiduciary?

If the services are provided by one company, would the law treat one operation’s knowledge as the company’s knowledge? Or if the services are provided by companies that are commonly controlled (and perhaps have some workers or executives in common), might the law impute one company’s knowledge to another?

Even if the governing documents and their ERISA §§ 402-405 allocations make clear that a fiduciary has no direct responsibility for collecting contributions, every fiduciary has co-fiduciary responsibility.

Even if a fiduciary does nothing to enable another fiduciary’s breach, knowledge imposes a responsibility:

ERISA § 405 [29 U.S.C. § 1105] Liability for breach of co-fiduciary

(a) Circumstances giving rise to liability

In addition to any liability which he may have under any other provisions of this part {ERISA §§ 401-414}, a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstances:

(3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.

Mere resignation is, at least in the Labor department’s view, not enough effort to remedy another fiduciary’s breach. Further, a fiduciary’s resignation (without other steps) might be imprudent, especially if the resignation would increase a breaching fiduciary’s control or make it likelier that no one calls attention to the breach.

One unpublished trial-court decision included a finding of fact, without analysis, that a fiduciary made reasonable efforts to remedy another fiduciary’s breach by promptly filing a Federal court proceeding against the breaching fiduciaries.

In the range between those points, there is no published Federal court decision that interprets in meaningful detail what steps are enough to prove an observing fiduciary used “reasonable efforts” to remedy another fiduciary’s breach.

Is informing the Labor department enough? (If there is a co-fiduciary responsibility, doing nothing is not enough.)

If there was a theft and it becomes detected, a plaintiff might pursue everyone that has collectible assets.

Yet, many service providers dislike blowing the whistle on a client or customer. So, even if there is a co-fiduciary responsibility, the TPA and investment adviser might want their lawyer’s evaluation of the size of potential liability exposure and how probable or improbable it is that the adviser will become liable.

PamR · June 30, 2022

Peter, that is what I was researching, my co-fiduciary responsibilities under ERISA 405. I was hoping you would chime in, thank you!

rocknrolls2 · June 30, 2022

I am firmly behind Peter's position on this and I would NOT inform the DOL. However, if your client is a fiduciary with respect to the plan with potential knowledge of a fiduciary breach, then either work with your lawyer to write a letter to the allegedly breaching fiduciary threatening suit unless s/he makes any deferrals up to the plan with earnings as soon as possible but no later than a short period of sending the letter or sue the breaching fiduciary for fiduciary breach, in which case you would have to furnish a copy of the complaint to the DOL.

Peter Gulia · June 30, 2022

Just to be clear, I did not suggest a course of action, in either (or any) direction. My only suggestion was a way to think about the problem PamR described, so one might have some background to prepare to seek a lawyer’s advice.

I’m widely published for the idea that an investment adviser, if it is an ERISA plan’s fiduciary, should be mindful of its co-fiduciary responsibilities.

acm_acm · July 1, 2022

20 hours ago, Peter Gulia said:

Just to be clear, I did not suggest a course of action, in either (or any) direction. My only suggestion was a way to think about the problem PamR described, so one might have some background to prepare to seek a lawyer’s advice.

I’m widely published for the idea that an investment adviser, if it is an ERISA plan’s fiduciary, should be mindful of its co-fiduciary responsibilities.

The co-fiduciary issue is what I thought of immediately when the original poster said their company was a fiduciary for the investment advice.

It seems like the fiduciary investment advisor knowing about potential issue with another fiduciary means something needs to happen.

So following their own counsel's advice would be the first place to start.

MoJo · July 1, 2022

I'll state a position - based on Peter's excellent analysis. *IF* you are a fiduciary in any capacity, *and* you reasonably believe something is amiss, *unless* you do that which is necessary and reasonable to remedy the situation, *YOU* are liable under the application of co-fiduciary liability.

Resigning is not enough. When the DOL comes a calling (and someday some participant will make the call, they will inquire of you for record, probably via a subpoena, and when they discover that you function in any capacity as a fiduciary, you have a problem. What you posted here is probably discoverable by the DOL should they investigate....

Heck, we're a "non-discretionary, directed, ministerial service provider" (say that fast three times!) and the DOL routinely is trying to hold us responsible for missing contributions....

Luke Bailey · July 4, 2022

On 6/29/2022 at 3:18 PM, Peter Gulia said:

Of the TPA and the investment adviser, is one of those companies or operations a fiduciary?

Peter, I agree that the TPA should review this issue, but in the normal course of things, i.e. assuming typical TPA agreement and actual functions and powers, it is going to be unusual for a TPA to be a fiduciary, right?

Peter Gulia · July 5, 2022

Yes, a TPA (if it does not add what retirement-services people call a § 3(16) service) typically has service arrangements designed to keep the TPA a non-fiduciary contractor.

But PamR’s originating post states: “We are signed on as a Fiduciary on the Investment Advisory side[.]”

Luke Bailey · July 5, 2022

16 hours ago, Peter Gulia said:

But PamR’s originating post states: “We are signed on as a Fiduciary on the Investment Advisory side[.]”

Gotcha. Thanks, Peter.

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