What is the DOL Looking For? How to Prepare for an Audit

The thoughts of receiving a DOL letter alerting you that “pursuant to Section 504 of ERISA, the Employee Benefits Security Administration (ESBA) is requesting your voluntary cooperation with an investigation of the Plan to determine compliance and provisions of ERISA” would probably make most anyone weak in the knees. Once this Employee Plan Examination process is started, there are several steps involved including an on-site background interview and gathering documentation to submit prior to the interview.

In recent years, there has been an increase in the number of DOL audits, especially for plans that have more than 100 participants. Two common triggers for audits are employee complaints and errors found on the Form 5500. Responding promptly to employee requests and working closely with your record keeper, third-party administrator, ERISA attorney, and/or retirement plan advisor can help ease those situations. But, audits are similar to jury duty, eventually, most retirement plans will be audited.

If your plan is going to be audited by the DOL, their primary focus will be to determine if you and your plan committee are meeting your obligations as a fiduciary. Which means they will be asking for a lot of documentation. This is where you can be proactive: the primary key to lessening the impact of an audit on you and your team is preparation. It is as the adage states, “an ounce of prevention is worth a pound of cure.”

Here are some of the items you will be asked to produce in an audit:

  • Plan documents
  • 5500 filings
  • Trust reports
  • Participant loan information
  • Timing of employee payroll withholding deposits
  • Examples of individual benefit statements
  • Participant communication in regard to changes in the plan’s investment alternatives

Most audits I have seen require up to about 45 different types of documentation. Your letter will specify the exact information needed and will give a specific time period for the documentation, which is generally a three-year window. Download our DOL Audit Checklist for a comprehensive list of documents you may be required to submit.

One thing you can do to help mitigate your liability is to hire a co-fiduciary with expertise in advising on retirement plans. By having an advisor who will sign-on as a co-fiduciary to the plan you partner with an expert who sits at the same side of the table as you (interests are aligned) and can help provide expert guidance to help you mitigate risk, drive down fees, and help your participants. A 3(21) co-fiduciary sits with you at the table and takes on joint liability with you, while a 3(38) takes the investment selection risk off the table for you by taking it on themselves. However, even a 3(38) will not completely protect you from all liability and potential litigation. As plan sponsor, you’re always responsible for overseeing the providers that you have engaged to help mitigate your fiduciary liability.

BerganKDV has a team of advisors to help plan sponsors understand the complex world of retirement plans by helping with 401(k) design, fiduciary governance, benchmarking 401(k) fees, educating participants and investment due diligence. Want to learn more about what we can do for you? Start here.

The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

 The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.



CATEGORIES: 401k & Retirement | Human Capital Management
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