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Audit Survival Tips for Retirement Plans

Audit Survival Tips for Retirement Plans

| January 12, 2018
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Getting audited can be a big ordeal for many plan sponsors. If you are required to have an audit on by a third-party organization or by the DOL please make sure that you’re involved in the process and that you understand the areas and the focus of what is asked to make sure your audit goes smoothly.

The Department of Labor is responsible for the enforcement of labor laws which includes the Employee Retirement Income Security Act otherwise known as ERISA and the Department of Labor has the power to exact penalties for any breaches of fiduciary conduct if it chooses.

Fiduciaries can be held liable for breaches on behalf of the plan. So please pay particularly great focus in what you can do to help take steps to survive any kind of audit that would be imposed by the Department of Labor.

Before we dive into what to do, let’s first take a look at what has been the biggest issues for others in past audits, so we know what not to do. Here is a list of the 12 most common issues that the DOL finds in it audits of retirement plans:

  1. The plan document is not up to date.
  2. Plan operation doesn't follow the plan document.
  3. The plan definition of compensation is not followed.
  4. Matching contributions are not made to all eligible employees.
  5. ADP and ACP testing are performed improperly.
  6. Eligible employees are not allowed to defer or are not invited to participate in the plan.
  7. Deferral limits are exceeded.
  8. Deferral deposits are delayed or are missed.
  9. Participant loans don't follow the plan documents and procedures by law.
  10. Hardship distributions aren't properly administered.
  11. Top heavy requirements are ignored.
  12. Failure to file and form 5500 timely and accurately.

So, what can you do to avoid these mistakes and best be prepared for the day when you receive a letter from the Department of Labor?

Preparing for the audit requires a tremendous amount of attention to detail making sure that you have all these items prepared and ready for the audit will prove very beneficial. Make sure that all items are readily available either online or in a binder format in order to help the auditor work through your documentation fast and efficiently.

Have these items prepared and ready:

  • Corporate minutes
  • Trust reports showing all receipts and disbursements
  • Detailed documentation of fees and expenses paid from the trust
  • Any documentation regarding alternative investments
  • Any documentation showing valuation of assets
  • Service agreements and engagement letters from your service providers
  • Any kind of fee disclosure statements
  • Any kind of list of parties in interest
  • The organization chart of the plan's sponsor and who has ultimate responsibility
  • Trustee and investment committee minutes
  • Any plan documents, summary plan descriptions or investment policy statements
  • Summary annual reports
  • Participants statements
  • Evidence of fidelity bond and other fiduciary liability insurance policies
  • Documentation that your fiduciary plan sponsors have engaged in fiduciary training

Maintain and ensure that:

  • You are well organized
  • You have current eligible records for summarization and archiving
  • All of your key officials and external advisers are documented
  • The investment policy statement is up to date
  • Loan procedures are up to date
  • The determination letter and upcoming determination letter cycles are up to date
  • Your service agreement for necessary changes are in current law
  • The documentation of internal controls is updated as needed
  • You review of fees, fee changes and fee disclosures
  • You review of payroll, plan documents, summary plan descriptions and fidelity bond coverage
  • You review the 401(k) fix-it guide from the IRS and Department of Labor website
  • Your operation is relative to the terms of the plan and that all documentation related to corrections are provided under the SCP or VCP protocol
  • Trustor agreements, amendments and board resolutions are signed and on file
  • Your summary of material modifications, reports and other required participant notices are documented with dates of distribution
  • The investment process documentation decisions committee minutes is provided and retained
  • Your current form 5500 schedules and audit reports is provided and retained
  • Plan definition of compensation is provided and retained

After an audit, you will receive items of correction and areas that you can take to improve, correct and to show you have taken action to help improve your plan and correct your plan.

Making sure that you follow a strict schedule is imperative and the best way to go about it is by utilizing a team of experienced individuals that can help you manage the recommended processes, rules, and documents for the purpose of preparing yourself in case you ever have a plan audit.

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.

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