So…Your Plan Finally Got an Audit Notice from the DOL..What Now?

Through the Department of Labor’s (DOL)  Employee Benefits Security Administration (EBSA), DOL investigations are on the rise, conducting thousands of audits per year and the DOL is planning on hiring more enforcement officers.  The EBSA’s oversight authority extends to not only retirement plans but also to other welfare benefit plans, such as those providing life or disability insurance.  They are responsible for ensuring the integrity of the private employee benefit plan system in the United States.

In FY 2013, the EBSA closed 3,677 civil investigations with 2,677 (72.8%) resulting in monetary results for plans or other corrective action, exhibiting its ability to effectively target ERISA violators in the employee benefit plan universe and closed 320 criminal investigations. EBSA’s criminal investigations, as well as its participation in criminal investigations with other law enforcement agencies, led to the indictment of 88 individuals – including plan officials, corporate officers, and service providers – for offenses related to employee benefit plans.  More statistical information on EBSA investigations can be found on the DOL’s website. Fact Sheet.

With nearly three out of every four plans audited by the DOL having Employee Retirement Income Security Act of 1974 (ERISA) violations, industry professionals speculate they are preparing for another increase in benefit plan audits for both Retirement Plans and Health & Welfare Plans.

You Received an Audit Notice…Now What?

Simply put, don’t ignore it!!!  As previously mentioned, the DOL has the authority to seek both civil and criminal penalties and ignoring them is not going to make them go away.  Failure to provide requested plan documents can result in a penalty of up to $110 per day up to $1,100 per request.

The notices generally include a lengthy list of documents it wants to review as well as a required response date, usually ten days from the receipt of the letter.  It will also indicate when the audit is scheduled as well as the contact information for the examiner.  If you have a scheduling conflict or need more time to gather all of the information requested, don’t hesitate to ask for more time.  The auditors are generally pretty reasonable  and if given ample time are willing to reschedule.

The Process of the DOL Audit:

  • Document Request Letter;
  • Document Production;
  • On-Site Interviews;
  • No Action, Voluntary Compliance or Violation Letter;
  • Closing Letter;
  • Settlement Agreement;
  • Civil Litigation Referral or Criminal Investigation

As part of the audit process, the EBSA investigator will interview the employer and other plan fiduciaries, such as the Plans’ Administrator, Attorney and Accountant.  Although these individuals should be prepared to answer any questions about the plan and its operation, it is advisable  not to volunteer any additional information beyond what is asked.

Common Documentation Requests from the DOL:

  1. Plan Documents and Trust Agreements, including all amendments
  2. Summary Plan Description (SPD)
  3. Summary of Material Modification (SMM) Reports
  4. IRS Determination Letter (s)
  5. Signed IRS Form 5500 with all attachments, including accountant’s opinion, financial statements and notes to the financial statements
  6. Summary Annual Report (SAR)
  7. Fidelity Bond
  8. Trustee/Corporate Meeting Minutes
  9. Distribution Records
  10. Individual Benefit Statements
  11. Service Provider Contracts
  12. All Participant Notices
  13. Discrimination Testing Results
  14. Investment Policy Statement
  15. Beneficiary Designation Forms

Generally, the EBSA conducts an onsite review of the documents.  However, it is best that before the onsite review begins, you review with a qualified professional all the documents, gather supporting evidence, and organize plan records.  At this point, it is also useful to work with your providers to conduct a pre-audit. This process involves reviewing plan records and operations for the years the auditor will be examining. Retirement plans are complicated, and despite best efforts, mistakes do happen. To the extent you are able to identify mistakes and take corrective action before the audit begins, the more likely you are to minimize any penalties that might otherwise be assessed. Certain types of mistakes can be completely self-corrected even when a plan is under examination.

What are They Most Likely Targeting:

After the examiner receives and reviews the documents provided, they will perform tests and analyze the information focusing on such items as:

  • Timeliness of deposits of participant deferrals;
  • Payment of plan-related expenses;
  • Funding Policy;
  • Investment Policy Statement;
  • Prohibited transactions;
  • Accuracy of financial data reported on Form 5500;
  • Bonding; and
  • Reporting and Disclosure

Since the goal of the DOL is to protect the rights of the plan participants and beneficiaries, they are looking to protect the integrity of retirement plans, health plans and other employee benefits plans and overseeing the administration and enforcement of parts of ERISA.

What You Need to Do:

  1. Be Organized and Timely.  Give the auditor exactly what they ask for, preferably in the same order as listed in the audit letter so as not to needlessly waste the auditor’s time or inadvertently exposing other potential issues.
  2. Be Courteous, Professional, and Respectful.  You will only make matters worse if you are not cooperative.
  3. Be Knowledgeable about your Plan.  It is important to be knowledge about the operations of your plan.  However, if you do not know the answer to an auditors question, don’t make one up.  Take note of the question and ask for time to research and respond as quickly as possible.
  4. Be Patient.  The investigation process can take anywhere from six months to two years
  5. Be Proactive.  If you don’t have the expertise to manage your plan in a compliant manner, then hire an expert that can help you through the process.

Keep in mind that the DOL and IRS frequently work together.  At any point the DOL auditor can identify potential issues to refer to the IRS for additional investigation.  And although main audit focus has been on retirement plans, with the passage of the Affordable Care Act (ACA) in conjunction with the Health Insurance Portability and Accountability Act (HIPPA), and the Consolidate Omnibus Reconciliation Act (COBRA), there is an active increase in group heath plan audits.  BE PREPARED!

The information contained in this article should not be considered tax or legal advice.  Plan Sponsors should always consult with their advisors for the application of the ERISA rules related to their specific situation.


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