Is the DOL knocking on your door? For many employers, it's not a matter of "if" but "when" to expect the Department of Labor on your doorstep. Will you be prepared?

The recent financial crisis created numerous challenges for businesses, including one that may plague business owners well into the future. As is typical when the financial markets retreat, retirement plan account balances go down and participant complaints to the DOL may go up. Because the recent recession has been unusually lengthy and the financial markets slow to demonstrate a sustained rally, this may result in an unprecedented number of complaints by participants. A large number of DOL investigations originate from participant complaints.

The DOL has increased the number of personnel responsible for investigating potential violations of ERISA's fiduciary, reporting and disclosure requirements in recent years. The DOL conducts investigations of fiduciaries and service providers to ensure that they operate plans in the participants' best interests. In addition to requiring that violations are corrected, the DOL has the authority to levy penalties and fines in appropriate cases.

One area that is getting a lot more interest is target- date funds. These funds are typically used as the plan's qualified default option. An investment in a target-date fund is not guaranteed at any time. Still, employers and employees have embraced these funds as a way to help employees with investments and asset allocation.

The DOL recently issued general guidance to help plan fiduciaries select and monitor target-date funds offered in 401(k) and similar participant-directed individual account plans. The bulletin, Tips for ERISA Plan Fiduciaries, offers a summary of the nature and purposes of a target-date fund. It also includes points to remember when choosing and periodically reviewing these funds, and provides tips on understanding the fund's investments and how they will change over time. The DOL's tips are at


Usage continues to grow

At year-end 2012, 84% of plans that Vanguard provides recordkeeping for offered a target-date fund. Half of all participants had invested in these funds, and nearly one-third of total plan contributions went to TDFs. Below are some of the results of Vanguard's review of 3.2 million participants in 2,000 defined contribution plans.

In 2012, about 27% of participants were invested in a single TDF. Of new plan entrants, 65% held just one.Only 13% of plans offered TDFs in 2004; by 2012, that had risen to 84%. Total plan assets in TDFs were 17% at the end of last year (compared to 1% in 2005), and 31% of contributions went to TDFs (versus 2% in 2005).

Vanguard researchers found that three factors support the popularity of TDFs among plans and participants:

1) They offer a simplified approach to investment decision-making and assembling a portfolio;

2) Automatic enrollment continues to grow;

3) TDFs are frequently designated as a qualified default investment alternative.

A way to minimize the possibility of investigations and penalties is to take a proactive approach now. Using DOL tips will help plan sponsors review their target-date funds on an ongoing basis.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

Ludwig, ChFC, AIF, CRPS, is a financial adviser with LHDretirement. Reach him at

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