Labor fines pension adviser $1.27 million over fee disclosure

Reuters News
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Posted: Aug 31, 2012 10:53 AM
Labor fines pension adviser $1.27 million over fee disclosure

By Jessica Toonkel

NEW YORK (Reuters) - The U.S. Department of Labor has fined an adviser more than $1 million for failing to disclose fees it received related to 13 pension plans it oversees, a sign the agency is toughening its enforcement of fee disclosure rules, attorneys said on Friday.

On August 23, the Labor Department announced that USI Advisors, a Glastonbury, Connecticut-based fiduciary investment adviser, agreed to pay $1.27 million for failing to disclose marketing fees it received from funds in 13 pension plans it oversaw from 2004 to 2010.

As a fiduciary, USI, a subsidiary of USI Consulting Group, a Goldman Sachs Capital Partners Co. unit, is required under Labor Department rules to disclose to clients all fees it receives.

"If you, as an investment adviser, are a fiduciary under ERISA with respect to plan investments in mutual funds, you cannot use your fiduciary authority to receive an additional fee or to receive compensation from third parties for your own personal account in transactions involving plan assets," Phyllis C. Borzi, assistant secretary of labor for employee benefits security, said in an August 23 statement announcing the fine.

A call to USI Advisors on Friday was not returned.

The size of the penalty is significant, given that most fines over retirement plans range in the thousands of dollars, said Bradford Campbell, an attorney with Drinker Biddle & Reath and a former assistant director of the Labor Department's Employee Benefits Securities Administration.

"This is a cautionary tale," Campbell said. "If you decide to be a fiduciary adviser to a plan, you need to fully understand the obligations associated with receiving compensation."

The Labor Department in recent months has made fee disclosure of retirement plan fees a priority, both in its rules and through its investigations.

Starting in July, advisers and other service providers to retirement plans had to begin disclosing to their employer clients all of their fees. On August 30, employers had to begin disclosing those fees to retirement plan participants.

Particularly in recent months, the Labor Department's Boston office, which fined USI, has been increasingly active at looking at fee disclosure, said Marcia Wagner, a principal at The Wagner Law Group, a Boston-based law firm that works with retirement plan providers.

"I have definitely seen an increase in audits in the Boston area," Wagner said. "This is the beginning of a trend."

However, the recent rule that took effect in July requiring advisers and other service providers to disclose their fees to employers may help them avoid being fined by the Labor Department, Campbell said.

"The new rules should help providers make sure they know they are doing the right thing," he said.

(Reporting by Jessica Toonkel; Editing by Walden Siew and Dan Grebler)