A Glastonbury-based national consulting firm specializing in retirement and employee benefits has agreed to pay the U.S. Department of Labor $1.27 million to resolve allegations that it retained certain fees that should have been passed on to clients.
The investigation conducted by the Labor Department’s Employee Benefits Security Administration focused on USI Advisors Inc., a subsidiary of USI Consulting Group, a Goldman Sachs Capital Partners Co. based in Glastonbury.
The probe discovered that USI Advisors made investments in mutual funds on behalf of ERISA-covered benefit plan clients and received 12b-1 fees from those mutual funds. A 12b-1 fee is paid by a mutual fund out of fund assets to cover certain expenses.
USI Advisors failed to fully disclose the receipt of the 12b-1 fees, and it also failed to use those fees as required — by crediting the fee payments to the clients’ plans or by offsetting other fees the clients’ plans would be obligated to pay the company.
The alleged violations occurred between 2004 and 2010.
“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 a statement.
To resolve the alleged violations of the Employee Retirement Income Security Act, USI Advisors agreed to pay $1,265,608 to 13 pension plans. The Labor Department never had to file a formal lawsuit prior to reaching a settlement agreement.
“We are very pleased that this settlement addresses the problems we identified with USI’s practices and restores funds to the plans and their participants,” added Borzi. “We are also very pleased that recently finalized fee disclosure regulations issued by the Labor Department will require fiduciaries like USI to be more transparent about the fees they receive when dealing with their plan clients.”
A lawyer with the USI Consulting Group said it was a common industry practice at the time for companies to retain those fees.
“It was an area that there wasn’t a lot of guidance around and so we agreed to disagree with the [U.S. Labor] Department and chose to pursue a settlement for the benefit of our clients,” said Christina Anstett, USI Consulting Group’s senior vice president and chief legal officer. “It was a six-year long investigation that we cooperated fully with the department.”
Under the terms of the settlement, USI Advisors has agreed not to provide bundled investment advisory and actuarial services to any ERISA-covered defined benefit plan client without first entering into a written agreement, contract or letter of understanding that specifies the services provided and whether the company or its affiliates will act as a fiduciary to those plans.
USI Advisors also will provide to clients a description of all compensation and fees received, in any form, from any source, involving any investment or transaction related to them.
“We voluntarily — just given what the industry has done and the Department of Labor regulations that have come out since this investigation started — to evolve our own business model,” explained Anstett. “We discontinued the [business] model we were using and now it’s just a fee for service investment advisory and actuarial service that we provide. It’s fully transparent.”
The investigation was conducted by the U.S. Department of Labor’s Employee Benefits Security Administration’s Boston Regional Office as part of the agency’s Consultant/Adviser Project. The settlement was reached with the assistance of the Labor Department’s Regional Office of the Solicitor in Boston.•