How to Survive a DOL Audit

EBSA investigation will occur 'at some point in time'

401k, audit, DOL, advisorIt's never fun, but should it be feared?

Many businesses put a lot of time and effort into initially setting up company retirement plans. Unfortunately, and as too many 401k advisors know, they fail to regularly revisit the plans to ensure they are staying in compliance with ERISA and federal regulations, or do not take into account governmental policy changes.

A Department of Labor investigation can uncover problems with retirement plans and subject employers to costly penalties.

The Employee Retirement Income Security Act (ERISA) gives the DOL the authority to investigate various violations. If violations are identified, the DOL can pursue corrective action through voluntary compliance, restitution, rescission of prohibited transactions, removal of fiduciaries, appointment of a receiver, and/or the imposition of penalties.

Investigations into employee benefit plans are conducted by the Employee Benefits Security Administration (EBSA). It is not uncommon for many companies to end up under investigation by EBSA at some point in time. The good news is that, in many cases, the DOL’s Voluntary Fiduciary Correction Program (VFCP) can be utilized to comply with ERISA regulations and avoid costly penalties.

When a company receives notice of an EBSA investigation, they often wonder what prompted the inquiry. An investigation can be triggered by any number of reasons, including a tax audit, information provided in the plan’s annual Form 5500 filing, a complaint lodged by plan participants, or even a change in policy within the agency.

For example, last year, the DOL announced they would increase enforcement to ensure plans were locating missing pension plan participants. Failing to locate missing participants or beneficiaries may be considered a breach of fiduciary duty and could expose plan sponsors to liability. As a result of the policy change, the DOL uncovered that many larger defined benefit plans have inadequate procedures in place for locating missing plan participants.

There are a number of steps employers can take before they are given notice of any investigation to reduce the risk of penalties. First and foremost, proper documentation can go a long way to reducing the risk of violations.

Proper documentation includes making note of the reason a fiduciary makes a decision on behalf of the plan participants to show they were acting in their best interests. This includes considering plan expenses in light of the services provided and making sure there are no perceived conflicts of interest between a fiduciary and service provider.

Second, plan administrators should regularly review plan documents to make sure they are adhering to the plan procedures, and documenting the steps taken in compliance with the plan. For example, if the plan document requires that employee deferrals be deposited within a certain time period, the plan administrator must ensure the deposits are being timely made.

Third, employers and plan administrators should listen to the plan participants themselves when they point out issues they are experiencing with the retirement plan. This includes trouble accessing benefits, incorrect account balances, or delays in making deposits. The plan participant may bring to light possible violations that allow the plan provider to fix the issue before the DOL takes notice.

Whenever there is any doubt about a plan procedure or whether an action could violate ERISA requirements, the plan administrator or employer should consider contacting their ERISA lawyers for guidance. ERISA regulations, DOL policies, and case law are always changing and it can be difficult for employers or plan administrators to keep up to date.

Paul Woodard is an associate with San Diego-based Butterfield Schechter LLP.

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