EBSA to Focus on Conflict-of-Interest Rule, Prohibited Persons, Audits, Borzi Says

The civil enforcement efforts of the Department of Labor's Employee Benefits Security Administration achieved nearly $1.7 billion in monetary results during the 2013 fiscal year, Phyllis C. Borzi, assistant secretary of labor for EBSA, told conference attendees at a Feb. 7 presentation.        

Although she noted that not all of the $1.7 billion represented “money restored to participants,” Borzi called this a “huge recovery for a relatively small agency.”         

The agency also closed 320 criminal investigations in fiscal year 2013, with these cases resulting in 88 indictments, Borzi said.         

Borzi spoke about EBSA's priorities and initiatives in the coming year at a session of the 2014 Midwinter Meeting of the American Bar Association Section of Labor and Employment Law Employee Benefits Committee. The conference was held in New Orleans.         

Conflict-of-Interest Rule          

With respect to EBSA's 2014 regulatory agenda, Borzi said that the agency's “most important regulatory priority” continues to be the re-proposal of the conflict-of-interest rule, which is expected to redefine the term fiduciary.           

Borzi pointed to the changed nature of retirement savings and the deficiency in financial literacy throughout the country as reasons why an updated fiduciary definition was important.         

Borzi said that, given the shift from defined benefit to defined contribution plans, “people have to be their own financial advisors.” This makes it even more important for individuals to receive reliable and impartial financial advice, she said, adding that studies show that many people lack the financial literacy to manage their retirement savings.         

Borzi said that while tax code Section 401(k) plans are “excellent savings opportunities,” they can be poor vehicles for retirement planning, because it's fairly easy for participants to withdraw money prior to retirement.         

Given these factors, Borzi said the conflict-of-interest rule was important, because individuals need access to competent and unbiased advice with respect to their retirement savings.         

“People are scared and they need advice,” Borzi said. “They need to know that when they hire someone to help them navigate these difficult and confusing decisions, that the person they hire has their best interests at heart.”         

Although a fiduciary isn't a “guarantor of results,” Borzi said, it still must be “single-minded in purpose” and act in the best interest of its clients.          


Although Borzi didn't identify a specific timeframe for the release of the re-proposal, she said that the agency currently is working on enhancing the economic analysis underpinning the rule.         

Moreover, she said that the re-proposal will reflect a better understanding of the compensation practices of the financial services industry.         

Borzi also suggested that the agency may propose one or more prohibited transaction exemptions to address some of the compensation practices currently being used in the industry. However, she cautioned that, “we're not grandfathering everything that currently goes on.”         

Prohibited Persons Project          

On the enforcement side, Borzi said that EBSA recently started two pilot projects that may be elevated to national enforcement projects in the future.         

The first, which Borzi called the prohibited persons pilot project, seeks to track individuals in the service provider community who have a history of misconduct.       

Currently, “there really isn't any mechanism for us to track these people, so they become repeat offenders,” Borzi said.         

The goal of the project, Borzi said, is to ensure that small and medium businesses “don't get lured into hiring somebody to provide services to them who's already proven to be someone who's not in compliance with the law.”

Excerpted from a story that ran in Pension & Benefits Daily (2/10/2014).