Februaary 7, 2013 A
Author: Allison A
A. Tumilty If you have questions, please ontact your regu
ular Groom co
atttorney or any o
of the atttorneys listed b
below: Sttephen M. Saxon [email protected] (2202) 861‐6609 A
Andrée St. Martin asstmartin@groom
m.com (2202) 861‐6642 Ro
d oberta J. Ufford
ru
[email protected] (2202) 861‐6643 A
Allison A. Tumiltyy [email protected] (2202) 861‐0159 DOL Settlemen
nt Regardiing Tradin
ng Error C
Correction
n Gains The Department of Labo
or (DOL) annouunced on Febrruary 4, 2013 th
hat it had reacched a nt agreement ttouching upon , among otherr issues, the dissclosure of com
mpensation settlemen
earned un
nder an investm
ment transactiion processingg error correction policy. The $5.2 million settlemen
nt with ING Life
e Insurance annd Annuity Co. (ILIAC) resulteed from an inveestigation conducted by the Emplo
oyee Benefit Seecurity Administration's Bostton Regional O
Office. The DOL alleged that ILIAC'ss failure to discclose its policy on reconcilingg transaction processing errors to retirement plaan clients was aa violation of the Employee R
Retirement Inccome Security A). Act (ERISA
Recordke
eepers and oth
her administrattive service pro
oviders to plan
ns typically exp
perience occasionaal errors in processing investm
ment transactiions on behalf of client planss. These errors maay occur when purchase or saale orders are placed for an eerroneous amo
ount or investment or when succh orders are nnot completed at the correct time. Most seervice he price of providerss undertake to make their clieents whole by placing correcctive orders. Th
the investtments will like
ely have changged during the interim betweeen the erroneous trade and the corrective trade
e. As a result, aa gain or a losss may be generrated due to th
he correction. ontracts to fund
d losses resultiing from such Some servvice providers will agree in thheir service co
errors. ws release desccribes that it hhas been ILIAC's practice to keep the gains rresulting DOL's new
from the correction of aan error in twoo instances; firsst, when proceessing transactions that process as of th
he contract daate and second
d, when re‐proccessing erroneeous failed to p
transactio
ons. The DOL aalleged that ILIA
AC's failure to disclose its traansaction errorr correction policy ressulted in it rece
eiving compenssation in violattion of ERISA. As part off the settlemen
nt, ILIAC must make full discllosure of its invvestment transsaction policy to both cu
urrent and pro
ospective clientts who are sub
bject to ERISA. The disclosuree must be in writing; either through a separate nottice for currentt clients, or by incorporation into the service co
ontract for prospective clientts. ILIAC is furth
her obligated tto inform clien
nts that it will track, on an annual basiis, the effect thhat correctionss have on each
h plan and will make such o the client. Finnally, in its discclosure, ILIAC m
must acknowleedge that any information available to
er the correctioon policy constitute addition
nal compensatiion for gains thatt are kept unde
services ILLIAC provides. ILIAC will repoort this additio
onal compensattion in accordaance with ERISA secction 408(b)(2). We haave worked witth a number off clients on issu
ues relating to error correction. This settleement agreemeent lends suppo
ort to a position
n we have ofte
en considered, which is that aan error correcction policy under which a reecordkeeper retains inadvertent ggains can be a part of a reaso
onable service arrangement, so long as pro
oper disclosurees have been ney or one of tthe attorneys in the fiduciaryy practice group to made.. Please contact your regularr Groom attorn
determ
mine how this information m
may apply to yo
our business. This publication is provided for ed
ducational and informattional purposes only and
d does not contain legal advice. The informationn should in no way be taaken as an indication of ffuture legal results. Acccordingly, you should n
not act on any informatio
on provided without con
nsulting legal counsel. TTo comply with U.S. Treaasury Regulations, we also inform you that, unleess expressly stated oth
herwise, any tax advice ccontained in this commu
unication is not intended
d to be used and cannott be used by any taxpayyer to avoid penalties un
nder the Internal Revenu
ue Code, and such advice can
nnot be quoted or refere
enced to promote or maarket to another party any transaction or matteer addressed in this com munication. © 2013
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