Complete Documentation is Vital for Your Protection
I would like to share some insights with you that I obtained while working as a Department of Labor ERISA investigator. I am sure you can gain from my experiences.
My job was to figure out if the various fiduciaries, particularly the plan sponsors' executives, conducted themselves in a “prudent manner” and “solely in the interest of the participants and beneficiaries.“ That was such a nebulous standard, analogous to the late Supreme Court Justice Potter Steward’s description of pornography when he said, "I shall not today attempt further to define the kinds of material but I know it when I see it.”
Eventually, I knew it when I saw it. Ultimately, I developed a twitch when I didn’t.
When I first began investigation plan sponsors in the early nineties, I remember my supervisor admonishing me to look at transactions to see if they passed the smell test. When I was new, I often overreacted when:
- Plan sponsors ignored the first letter requesting documents
- Plan sponsors called and requested extensions
- Plan sponsors would not submit what was requested
- Employees would call our help desk and allege conspiracy theories and
- Receiving written responses that were cryptic, too literal or terse.
In most of the above instances, nothing was seriously wrong with the employee benefit plans. However, I was required to complete limited investigations within three work days or convert the case into an investigation warranting more review. Then I had no further time requirements other than not to annoy my boss and demonstrate results. I then became motivated to find something wrong in order to justify that my time was well-spent. When this happened, I began to chew into plan sponsors’ schedules. At that point, sponsors often involved their lawyers and other service providers.
The moral of the above is that your initial response to the Department of Labor’s request is critical.
DOL investigators have to make quick decisions about how they will allocate their time. If they receive complete, well documented adequately labeled responses that address the issue at hand, they can write up their reports and submit it up the food chain and close an investigation in fairly short order. But if they are forced to request information from executives repeatedly or the explanations provided to their questions seem flimsy, they will expand the scope of the investigation. If they have doubts about how competently sponsors’ employees respond to the investigation, they start questioning their ability to run the plan prudently.
Most people think of themselves as both competent and reasonable. Under the circumstances presented, almost anyone would make the same decisions that they made. But most people also do not have stellar long-term memories. Most investigations take place several years after the transaction takes place. Can you remember in detail about decisions you made several years ago? Most likely, your recollections would be hazy. Unless your decision making process was memorialized contemporaneously, it is easy to question your judgment after the fact as well as your veracity. Even if the consequences of your decisions do not materialize the way you expect, if you record the analysis and decision making process as events occur, then it is much easier for investigators to put themselves into a fiduciary’s shoes.
I want to interject another word of caution. If the investigation broadens significantly, the Department of Labor does have subpoena authority. In most instances, this authority has been supported by the courts. The practical implication is that the Department can obtain all documentation surrounding an issue, even internal email or other work products. The records of your service providers can be obtained by subpoena as well, including their email records.
By imposing discipline on your decision making process and documenting how you arrived at your conclusions as a fiduciary, you will be demonstrating prudence and no one, not even the late Justice Steward could argue otherwise!
