PBGC identifies potential fiduciary breach violations while evaluating whether a plan should be terminated, valuation of plan assets after PBGC becomes trustee, and integration of assets into PBGC’s investment portfolio.
Potential fiduciary breach violations may come to the attention of PBGC through various sources, including, but not limited to, PBGC’s review of the plan’s:
- Form 5500 filings
- bank statements and/or asset statements
- actuarial valuation reports
- financial statements
In addition, PBGC may learn of potential fiduciary breaches through:
- Referrals from the Department of Labor (DOL).
- Contact from participants and/or beneficiaries of the pension plan.
PBGC’s fiduciary breach investigations generally cover the following broad categories:
The following are examples of plan loans that will be investigated by PBGC:
- Plan fiduciary authorized a loan from the plan to the plan sponsor.
- Plan fiduciary authorized a loan from the plan to an individual or entity. For example:
- A loan from the plan to an individual who is not a participant in the plan.
- A loan from the plan to an entity that is fully or partially owned by the plan fiduciary.
- A loan from the plan to a business that is related to the plan sponsor.
Withdrawals from Plan Assets
PBGC will investigate withdrawals/transfers of assets from the plan for a purpose other than to provide benefits to participants and beneficiaries or to pay plan expenses.
The following are examples of an improper use of plan assets that may be investigated by PBGC:
- Plan fiduciary transfers money from the plan to the plan sponsor for company expenses. PBGC has found that such transfers often occur when the plan sponsor is in financial distress.
- Plan fiduciary transfers money to himself.
- Plan fiduciary transfers money to a third party or to an individual or entity that is not related to the plan.
Plan fiduciaries are required to make prudent investment decisions.
The following are examples of plan investments that may be investigated by PBGC:
- Plan fiduciary invests plan assets in unconventional investments (for example, real estate, investments that are not publicly traded, or illiquid investments).
- A large percentage of the plan’s assets are invested in a single security or one type of security.
- Plan fiduciary authorizes the plan to invest in Employer Securities.
Plan fiduciaries are permitted to use plan assets to pay reasonable plan expenses. PBGC will investigate payments for unrelated expenses. For example:
- Plan pays expenses related to sponsorship of the plan such as an analysis of whether to amend the plan or the affordability of the plan. These are known as settlor expenses and must be paid by the plan sponsor.
- Plan pays for other expenses that are required to be paid by the plan sponsor.
- Plan pays for expenses that are related to another retirement plan that is also sponsored by the plan sponsor.
A plan fiduciary is personally liable for any breach of their responsibilities or duties to a plan.
When PBGC discovers a fiduciary breach, it may seek restoration of the losses that were sustained by the plan through:
Settlement Agreement between PBGC and the Plan Fiduciary
- If the plan fiduciary is entitled to a plan benefit, in lieu of litigation, PBGC may offer the option of offsetting/reducing the plan fiduciary’s plan benefit to satisfy their liability to the plan.
- If the plan fiduciary is married, the consent of their spouse is required before their plan benefit can be offset/reduced. Such consent must be in writing.
PBGC’s Mediation Program
PBGC may offer the option of mediation through PBGC’s Mediation Program.
PBGC initiates litigation in a U.S. District Court to recover the losses suffered by the plan, as a result of a fiduciary breach.
For more information on plan fiduciaries’ duties and responsibilities, please refer to the following: