The press release headlines are sobering: "U.S. Labor Department files suit to remove trustees," "Department of Labor files suit to recover unpaid contributions to 401(k) plan," and "Judge orders trustees to restore losses."
The Department of Labor website is overflowing with cases of regulators taking action against employers accused of mishandling employee benefit plans.
Among the most common cases: errors in administering 401(k) plans. Although Labor Department officials and experts in the ERISA field say the majority of cases are errors in reporting and do not result in civil lawsuits, the numbers of benefit plan cases investigated (of all kinds) are still impressive: the DOL closed 3,677 investigations in 2013, with nearly 73 percent of those resulting in monetary fines or other corrective action. Lawsuits were filed in 111 of those cases.
The department says it is working to educate employers about how to avoid errors, including conducting seminars and providing information on the DOL website.
In a March 21 blog post, Phyllis Borzi, assistant secretary of Labor for employee benefits security, noted that employers can find it challenging to administer benefits such as 401(K) plans.
"Most fiduciaries — people who have key responsibilities and obligations to an employee benefit plan — and employers want to do the right thing," she said in the piece. "However, inadvertent mistakes can create significant problems for fiduciaries and participants."
The problems can lead to substantial monetary fines and settlements.
In January, for example, the DOL announced that a Chicago-area manufacturing firm, Hico Flex Brass, would pay $79,000 to settle a case in which the company failed to properly distribute 401(k) earnings to employees.
A Jan. 10 complaint by the DOL asked the courts to rule that a machine shop in Santa Maria, Calif., should restore $58,000 in 401(k) contributions that the company improperly mixed with other business accounts.
For large companies, the costs are even higher.
A lawsuit brought by employees of International Paper resulted in a $30 million settlement in January, although that case was litigated by a law firm and not the DOL.
Even when the dollar figures aren't as high, cases involving 401(k) administrative errors can hit small and medium-sized employers hard.
Lawyers who work on employee benefits cases say many employers don't pay close enough attention to the complexities of administering retirement plans.
"It's just difficult at times for employers to keep up and attend to all the details," said John Nichols, an employment benefits lawyer with Minneapolis-based Gray Plant Mooty. "The rules are complex, and the administration of the plans is correspondingly complex."
Plenty of room for error
"The reality is that running a benefit plan such as a 401(k) plan has a lot of room for error built into it," said Stephen Rosenberg, an ERISA attorney with The McCormack Firm, based in Boston. "Many of these small and medium-sized companies are focused on running their business. They need to provide a 401(k) as an employee benefit but they don't really have the internal resources to do this."
Rosenberg said even large businesses often stumble with retirement plan administration. "Retirement plans, including 401(k) plans, are probably more regulated than anything in American economic life short of nuclear power plants," he said. "It's very difficult for any company not large enough to have a dedicated legal staff to hit every hurdle correctly."
Nichols said that the DOL tends to investigate certain areas of plan administration pretty consistently. "You see a lot of similarity" of the cases, he noted. "One exercise (employers can consider) is to go down the list of typical cases and say, 'How are we doing in each of these areas?'"
