Plan Sponsors may want to consider how a change in the EBSA’s investigation and adjudication of civil penalties could impact their compliance processes. For example, a change from an administrative law judge to a federal court could create more complex or detailed forms. On the other hand, some federal courts have procedures that allow for earlier resolution of cases, sometimes called early case adjudication. Those earlier settlements may lighten the load of plan administrators working with plans that are subject to the EBSA’s investigation.
Last Fall, we noted several cases before the U.S. Supreme Court that could impact the power federal agencies have to regulate and prosecute plan sponsors. Many of those cases are now working their way through the Court and may have profound impact on agencies such as FINRA, the SEC and the Consumer Finance Protection Bureau. They may also impact the Department of Labor and its investigative wing, the EBSA.
As we noted in September of 2023, the most contentious of these cases may be the one concerning the Consumer Finance Protection Bureau. The heart of CFPB v. Community Financial Services Ass’n of Am., Ltd. involves appropriations and funding for a specific agency, yet underlying the case may be the extent and amount of administrative agency authority.[1] But the CFPB case has two other amigos riding along with it. The two other cases involve the extent of the power of the SEC to bring enforcement actions on its own (SEC v. Jarksey) and the breadth of the power federal agencies have to interpret federal laws when the language of the statute is unclear (Loper Bright Enters v. Raimondo).
Interestingly, two agencies related to investment enforcement have moved towards greater transparency in the last few years. We thought this could indicate a potential shift towards more enforcement. The SEC considered a rule change in 2022 concerning how it notified parties about instituting proceedings to better match federal court proceedings. A change to ensure the SEC has process over those it institutes a proceeding against would be an indicator of increased future proceedings.[2] Concurrently, FINRA announced proposed changes to its process. They considered amending the way they select arbitrators, ensuring better review for conflicts of interest, written decisions for removal of an arbitrator, and clarification to ensure the parties know they can remove the arbitrator up to the first hearing.[3] These trio of cases may be timed to push back against the harbingers of increased enforcement.
The Jarksey case is especially important as it involves not the extent or scope of administrative power, as with the CFPB and Raimondo cases, but with whether a federal agency can conduct trial within its administration. According to the Department of Labor, its investigative wing, the EBSA “has enforcement authority over approximately 747,000 retirement plans, 2.5 million health plans, and 673,000 other welfare benefit plans, covering about 152 million workers and their dependents and over $12 trillion in assets.”[4] While the EBSA does not prosecute its criminal investigations, instead it hands them over to the US Attorney’s office, it does impose penalties for civil violations based on its own review and subpoena power.[5] Sometimes those penalties are adjudicated before a judge, called an Administrative Law Judge.[6]
The complaint by Jarksey is that by having both the prosecutor and the judge within the same agency there is a potential conflict of interest. In essence, the judge is not a true neutral party. Several justices on the Supreme Court appeared from their questioning at the argument stage of the case to agree with Jarksey: when financial penalties are involved, people may have a constitutional right to a jury.[7]
Plan Sponsors may want to consider how a change in the EBSA’s investigation and adjudication of civil penalties could impact their compliance processes. For example, a change from an administrative law judge to a federal court could create more complex or detailed forms. On the other hand, some federal courts have procedures that allow for earlier resolution of cases, sometimes called early case adjudication. Those earlier settlements may lighten the load of plan administrators working with plans that are subject to the EBSA’s investigation.
[1] https://www.bcgbenefits.com/blog/supreme-court-cases-for-sponsors
[2] https://www.bcgbenefits.com/blog/finra-enforcement
[3] https://www.bcgbenefits.com/blog/finra-enforcement
[5] https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement/oe-manual/civil-penalties#
[6] https://www.dol.gov/agencies/oalj/about/ALJMISSN#
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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