If you’ve ever gotten a letter from the Department of Labor (DOL) Employee Benefits Security Administration asking for more information about your benefit or retirement plan, you may have felt your heart thudding in your chest. Yes, it’s not a letter you wanted to receive. But it’s in your hand, and the process of a benefit plan audit can be manageable.
What sets off a DOL audit? Often it’s a plan’s Form 5500. It could be a complaint from a participant or an alert from a service provider.
So, how can you make the process manageable?
I had the opportunity to attend a session at the International Foundation Annual Employee Benefits Conference this past October called “A Real-World DOL Audit Experience: What Happens?” Throughout the session, the speakers—Jeffrey S. Endick, Principal of Slevin & Hart, P.C., in Washington D.C. and Samuel A. Henson, J.D., CEBS, ISCEBS-Fellow, of Lockton Companies in Kansas City, Missouri—offered practical tips on what to do (and not to do) when faced with a DOL benefit plan audit. Let’s dive in.
Before the Letter Arrives:
Regularly review policies.
The DOL often looks at a plan’s policies and procedures—especially delinquency, audit, investment and records retention policies—because these may include provisions that have not been followed due to changes in administration or professionals. Make sure your policies and procedures still reflect your practices by conducting periodic reviews.
Focus on areas where DOL often finds problems.
- Look for missing participants. Use the guidance in Field Assistance Bulletin 2014-01 for all types of plans, not only defined contribution (DC) plans as mentioned.
- Pay attention to trustee expenses. Have and be able to show an adequate level of trustee oversight on expenses.
- Deposit employee deferrals and loan payments into DC plans on a timely basis. The rules indicate deposits must be made as of the earliest date the funds can reasonably be segregated from general assets, but no more than 15 business days. Waiting 15 days will get you into hot water. The DOL is looking for one to three days for large plans and five to ten days for small plans.
- Write succinct meeting minutes. The DOL will read minutes first and look for problem areas. Be clear to reflect the decision at hand, what was reviewed and the outcome. There is no need to belabor a topic or describe an issue in ways that do not reflect the action of the board.
Notice from the DOL often comes via the aforementioned letter, and the deadline for response is usually short. First, always keep your eyes peeled. Don’t let something like this slip past and sit unopened and unanswered. It’s always acceptable to ask for an extension, and you may want to do so as a matter of course, but don’t let a letter sit.
After the Letter Arrives:
Involve plan counsel.
Always bring them in at the start, and use them as the point of contact with the DOL. They should serve as the “funnel,” ensuring no conflicting information or answers are given to the agency. You may have heard a myth that you will get “dinged” if you use counsel. The opposite is true; the DOL appreciates the presence of counsel to smooth the process.
Communicate with your fiduciary insurance carrier.
As a heads-up, promptly let them know you’ve been contacted by the DOL.
Pay attention to confidentiality provisions.
Service provider contracts often contain confidentiality clauses. If the DOL asks to see your service provider contracts, look for confidentiality provisions first. If present, you must get permission from your providers before sending the contracts to the DOL.
Get a receipt.
When turning over documentation to the DOL, always ask for a receipt as proof that you provided the information requested.
If you found and corrected a problem, show the DOL only if the problem was identified by the DOL. Only respond to what they ask. You don’t need to volunteer more information than what they’ve requested.
Provide information in advance.
Send as much documentation and information to the DOL as you can prior to their on-site visit. It may reduce the time they need to spend on site—something you and they will appreciate.
Prepare for trustee/plan sponsor interviews.
- Offer phone interviews rather than face-to-face to reduce expenses.
- Have counsel present.
- If you don’t know the answer, be honest. The answer can be provided later. Likewise, a correct answer can be provided later if you inadvertently misspeak.
- Request interviews with only one trustee or plan sponsor representative at a time, rather than as a group. This will give counsel time to talk with each individual between interviews.
Once the audit starts, the public can get access to your plan’s documentation through Freedom of Information Act (FOIA) requests. Ask the DOL to keep all information confidential as proprietary, and ask them to notify you if a FOIA request has been made.
Develop a communication plan.
While the audit is ongoing, decide how you’ll handle a request from the DOL if they want to communicate directly with participants. Also decide how you’ll answer inquiries from participants if they hear about the audit. After the audit is complete, the DOL may issue a press release. Develop a message for participants—Explain what the audit was about and actions that have been taken. Develop a message for the public as well.
After the Benefit Plan Audit:
Make needed changes as necessary.
Also monitor operations to make sure those changes have been implemented.
Know that it could happen again.
Don’t assume you won’t be audited again in the near future. There is a myth that the DOL will not conduct another audit for three years. This isn’t true; they can close a case and come back immediately.
Use the experience as a learning opportunity. Review plan design, compliance, policies and procedures. Involve your administrator and professionals in any discussions about changes in practices even if the discussions can be difficult. Accountability is important to prevent repeat problems. Make changes proactively and as needed.
A DOL benefit plan audit can be unsettling. Remember to keep the process cordial and professional. Using the tips above, and advice from your plan’s legal counsel, the process can be manageable.
Julie Stich, CEBS
Vice President, Content, at the International Foundation
Written by International Foundation of Employee Benefit Plans staff. This does not constitute legal advice. Consult your plan professionals for legal advice.
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