:: Due Diligence Checklist
December 20, 2006 · Posted in
ERISA
The “Consultant/Adviser Project”:
EBSA’s newest National Project will focus on the receipt of improper, undisclosed compensation by pension consultants and other investment advisers. EBSA’s investigations will seek to determine whether the receipt of such compensation violates ERISA because the adviser/consultant used its position with a benefit plan to generate additional fees for itself or its affiliates. EBSA may also need to investigate individual plans to address such potential violations as failure to adhere to investment guidelines and improper selection or monitoring of the consultant or adviser. The CAP will also seek to identify potential criminal violations, such as kickbacks or fraud.
[from EBSA website visited 12/20/06]
One of ERISA’s original roles was protector of the fisc of employee benefit plans. It has an array of tools for the purpose which are supplement by other provisions in Title 18:
The Employee Benefits Security Administration conducts investigations of criminal violations regarding employee benefit plans such as embezzlement, kickbacks, and false statements under Title 18 of the U.S. Criminal Code. Prosecution of these criminal violations are handled by U.S. Attorneys’ offices. Title 18 contains three statutes which directly address violations involving employee benefit plans:
(18 U.S.C. Section 664)
- False Statements or Concealment of Facts in Relation to Documents Required by the Employee Retirement Income Security Act of 1974 (18 U.S.C. Section 1027) [See Form Indictment]
- Offer, Acceptance, or Solicitation to Influence Operations of Employee Benefit Plan (18 U.S.C. Section 1954).
ERISA also contains the following criminal provisions:
- Section 411, Prohibition Against Certain Persons Holding Certain Positions
- Section 501, Willful Violation of Title I, Part 1
- Section 511, Coercive Interference. Persons convicted of violations enumerated in section 411 are subject to a bar from holding plan positions or providing services to plans for up to 13 years.
Given the foregoing, proper due diligence by plan fiduciaries is the first and most important duty they will undertake. While independent research is required, interviewing service providers to the plan is an critical part of the process. You may have your own checklist. If not, here’s a simple one to get you started:
- Do you have a relationship to any of the other parties involved in the adminstration of the plan or parties related to the plan? If so, what is that relationship? Explain.
- Has your company or a related company ever been involved in litigation concerning services or products, even if settled out of court? Have you or any of your employees or affiliates received a subpoena, cease and desist order or governmental inquiry of any kind regarding same? Explain.
- Under what circumstances would you terminate the services of a service provider or vendor you recommended to a plan? Explain with examples.
- What are the performance goals you have set for the service providers and/or vendors to the plan? How will you objectively measure attainment or failure to meet these goals?
- Do you have any policies or procedures to address conflicts of interest or to prevent these payments or relationships from being considered when you provide advice to your clients? (While most fitting for retirement plan consultants, the SEC guidelines are useful in identifying conflicts of interest and should be reviewed in this context.)
- Have you ever done business before with any of the service providers or vendors to the plan, or to any person or entity with a relationship to them? If so, explain.
- Do you stand to gain any financial advantage, whether by discount, rebate, contingent commission, or “soft dollar†benefit, by the referral, consultation, sale of product or services, by any party advising or transacting business with the plan? Will you agree to provide a complete accounting of such compensation and agree in writing that there will be no undisclosed compensation?
- Explain your relationship to the persons or entities referring you to the plan and any present, past or future basis of compensation between you or your company and these persons or entities.
- To what extent do you outsource services performable by you under the service agreement and to whom? What controls are in place to monitor those services, i.e., SAS 70 audit, funds accounting, etc.?
- Review the issues and questions presented in the DOL Fact Sheet on Selecting Service Providers and question along these lines.
For more information on conducting due diligence examinations, send your inquiries to rharmon@healthplanlaw.com.
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