Most articles written by lawyers cover technical legal subjects. They educate the reader on the law, but typically give little in the way of guidance about what the client should do . . . or not do. This article goes beyond a discussion of the law and even beyond advice about how to comply with the law. Instead, it discusses practical techniques for avoiding problems. In other words, this article is about risk management.
While ERISA is a voluminous law, it says little, if anything, about listening to employee comments and complaints. However, by listening . . . and acting, when appropriate . . . employers can avoid the disruption of an unnecessary DOL investigation and even the potential of fiduciary litigation.
On the first point—DOL investigations, one of the most common reasons for a DOL inquiry is a participant complaint. In other words, if one or more of your employees has a problem with your benefit programs, and if they believe that you will not respond to their questions or concerns . . . or if they express their concerns, and you do not respond . . . they often turn to the regional office of the DOL’s Employee Benefits Security Administration. Those offices have active programs for following up on complaints.
However, in my experience, many of those DOL inquiries could have been avoided. That is because they are often caused by a misunderstanding about the procedures or benefits under your programs. However, when the participants believe that their questions will not be openly and honestly answered, and when they turn to the DOL for help, a process is initiated that could result in a full-blown DOL investigation. In some cases, the initial question is easily answered by the employer, but the investigation leads to other issues.
As a result, it is important that your employees have a non-threatening procedure for raising questions and getting answers. Ask yourself, are the lines of communication clear? Who should be contacted? Do the employees really have access to that person? Does the designated person have the authority to answer the questions? Does that person know when the question should be “kicked upstairs” to a senior level?
Even if you answer those questions in the affirmative, you should periodically audit the process. For starts, you should have a file where you keep the employee complaints . . . and your responses. Go back and look at your 2008 files? Are the notations of the conversations adequate? Were the responses documented? In your estimation, were the complaints handled in a respectful and intelligent manner?
In some cases, there is a fiduciary duty for the plan committee to oversee that process. As an example, it is the plan committee that typically hires and oversees the service providers for the 401(k) plan. That includes both the non-fiduciary providers (like your recordkeeper) and the fiduciary service providers (like your trustee and investment consultant). ERISA says that the plan committee, operating as a fiduciary, has the legal responsibility to prudently select, and then prudently monitor, all of those service providers.
In recent guidance discussing those responsibilities, the DOL noted: “Fiduciaries also should take into account . . . participant comments and complaints about the quality of the furnished advice.” (In this case, the DOL was discussing participant-level investment advice; however, the principle applies to all 401(k) services for participants.)
The DOL continued: “With regard to comments and complaints, we note that to the extent that a complaint or complaints raise questions concerning the quality of advice being provided to participants, a fiduciary may have to review the specific advice at issue with the investment adviser.”
Thus, there is a legal duty for fiduciaries to investigate participant complaints . . . when appropriate. As they say, though, the devil is in the details. In my experience, it is often difficult to tell whether or not a complaint is well-founded. Where the complaint is frivolous and without merit, there is no duty to investigate. However, when a complaint is made, a plan sponsor typically does not have enough information to determine whether or not it has merit. Our advice is that plan sponsors should perform at least an initial inquiry to determine whether the complaint warrants further attention. That initial investigation should be documented and the information should be placed in a due diligence file. If the result of the initial investigation is that the employee complaint may have merit, the plan sponsor is obligated to take further steps.
My advice is that, once there is a decision that the complaint may be meritorious, the committee members should consult with an ERISA attorney about the scope of the investigation, the decisions that follow, and further communications with the employee.
Disclaimer Required by IRS Rules of Practice:
Any discussion of tax matters contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed under Federal tax laws.