CPA & Business Advisory Blog

How to Avoid Department of Labor Audits of Your Qualified Plan

I recently attended a conference of pension plan professionals, and one of the topics of conversation was the Department of Labor's (DOL) increase in examinations of tax qualified retirement plans. The DOL can wreak havoc on a tax qualified plan in many areas, including the assessment of civil penalties on the plan, the plan sponsor, and responsible persons at the plan sponsor. Sometimes these can lead to criminal prosecutions. Plan examinations are often time consuming, expensive to conduct, and bad for employee morale if the participants discover that an examination is occurring participants.

While plan sponsors endeavor to keep their plans in compliance with the rules of ERISA and the Internal Revenue Code, it is often administrative errors that cause a visit from the DOL; they now have over 450 field investigators who review qualified plan issues. Here are the most common reasons for the DOL to become “interested” in your plan:

  • A participant calls the DOL to register a complaint about the plan; while the DOL tries to handle this without an examination, they will communicate with the plan and unsatisfactory answers can lead to an examination.
  • Bankruptcy or media coverage that indicates that a plan sponsor is in financial trouble; the DOL has a taskforce that monitors this issue, known as the Rapid ERISA Action Team.
  • A plan reimburses its employer for expenditures that should not have been reimbursed.
  • Failure to follow the plan’s investment policy.  Additionally, DOL examiners are now beginning to investigate the level of fiduciary training that the plan’s fiduciaries have received.
  • Red flags that are found on IRS Form 5500:

    • Late transmittal of 401(k) deferrals—this is the biggest area of their review, and is a special DOL criminal initiative (the Contributory Plans Criminal Project).
    • A significant amount of ‘other assets’ reflected on the financial statements.
    • Investments whose values do not change from year to year.
    • Prohibited transactions that are not corrected.

The DOL has other initiatives that involve qualified retirement plans, but they are geared towards service providers to the programs as opposed to plan sponsors or to special types of plans (such as employee stock ownership plans). 

We would be pleased to discuss issues related to qualified plans, including helping plans be prepared for DOL examinations—it is more than just accounting records.  For more information on this topic, post a comment below or contact our Compensation & Benefits Advisory Services Group at 440-449-6800.

Click here to download our free e-book: The Basics of an Employee Benefit Plan Audit

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