DOL Audit Suggests More Alternative Investment Oversight

The office conducted an audit due to concerns by the Internal Revenue Service (IRS), Government Accountability Office (GAO) and American Institute of Certified Public Accountants (AICPA) that retirement plan assets invested in alternative and hard-to-value investments may have a direct and harmful effect on the retirement security of plan participants.The audit found that, while the DOL’s Employee Benefit Security Administration (EBSA) has made efforts to improve the oversight of plans that hold hard-to-value alternative investments, it has neglected to formalize regulatory guidance such as has been recommended by past Employee Retirement Income Security Act (ERISA) councils.

The report noted that plan administrators typically use limited scope audits, which have not been testing for the existence or valuation of plan assets in certain cases. It warned that EBSA needs to better protect plan participants from potential plan losses.

EBSA was advised to:

• Propose and formalize guidance, and evaluate recommendations from the ERISA Council;
• Improve procedures in enforcement reviews; and
• Improve Form 5500 data collection, analysis and targeting.

As of 2010, plans had almost $3 trillion in alternative investments, with EBSA estimating that between $800 billion and $1.1 trillion were hard-to-value investments.

In a response to the audit, EBSA said it believed the trillions of dollars invested in alternative investments and hard-to-value assets pose no significant valuation concerns. The agency contended that ERISA has already provided sufficient guidance, that its investigative procedures are sufficient and that Form 5500 already focuses on asset valuation.

EBSA agreed to consider the recommendations from the audit report but did not provide any explicit corrective actions.

The full audit report, a summary of the report and EBSA’s response can be found here.