If the DOL Comes Knocking, Will You Be Ready?
"Knock, knock." "Who’s there?" "It’s the U.S. Department of Labor!"
If you are a retirement plan sponsor, fiduciary, or trustee and you are greeted with those words, you have a right to be nervous. Why? When the Employee Benefits Security Administration (EBSA)—the Department of Labor (DOL) agency that enforces pension plan regulations—chooses to examine your company's retirement plan, it will look exhaustively for fiduciary and administrative deficiencies that, if uncovered, could result in hefty fines and penalties for your company. Let’s take a look at why your company's retirement plan may be targeted for an audit, what happens if your plan is chosen to be audited, the potential consequences you'll face if errors are found, and ways to ensure that you are prepared.
What Information Will the DOL Review During an Audit?
If the DOL selects your plan to audit, it will notify the trustee(s) of your company's plan via an engagement letter. In the engagement letter, the DOL investigator handling the audit will request a comprehensive list of plan- and participant-related documents, including (but not limited to):
- Plan document and related amendments
- IRS Form 5500 for the plan year being audited
- Most recent summary plan description (SPD)
- Most recent summary annual report (SAR)
- Copy of distribution, loan, and other transactional forms for a specified time range
- Census of the plan participants, including highly compensated employees (HCE)
- Trust statements
- Schedule of plan assets for a specified time range
- Sample employee benefit statements
- All pertinent documents related to fees, including mandatory fee disclosures
- Service provider contracts
- Forfeiture account statements and history
- Nondiscrimination testing results for a specified period
- Copy of the plan's fidelity bond
- List of the plan's investments and investment performance
- Plan's investment policy statement (IPS)
- Plan or investment committee notes and minutes, including documentation related to the selection, retention, or removal of plan investments
Once DOL investigators receive these documents, they will review them with a fine-toothed comb, focusing on several key areas, including (but not limited to):
- Timeliness of depositing employee contributions
- Demonstration of a clear and prudent process for selecting and removing plan investments
- Applying the correct definition of employee-eligible compensation
- Adhering to the terms of the plan documents
- Reasonableness of fees, and a demonstration that service provider fees have been examined
- Timeliness of transactional processing, such as distribution and loan requests
- Accurate reporting on Form 5500, SPD, and SAR
- Adequate bonding
- Treatment of missing or terminated participants