Want to Lessen Chances of a DOL Inquiry? Ten Tips

Paul McEwan | September 21st, 2011

The Department of Labor (DOL) enforces fiduciary, reporting and disclosure requirements for employee benefit plans. The agency is recruiting more investigators, so DOL investigations will be on the rise.

At the very least, DOL inquiries are a nuisance. At their worst, they can result in significant penalties or full plan audits that can create even more issues. You can take steps to avoid a DOL investigation. Here’s how:
1. File your Form 5500 timely and accurately. The filing deadline for Form 5500 is the last day of the seventh month following plan year end, with an automatic extension available if needed. Now that the filing process is electronic, the DOL knows immediately when your plan filing is tardy. They will send an inquiry – quickly.

File on time to avoid paying unnecessary penalties. If you rely on plan providers to prepare the Form 5500 for your plan, make sure they are reputable. And always review the Form 5500 before you file it to catch obvious errors or omissions.

2. Engage a quality CPA firm to perform your plan audit (if your plan requires an annual audit). If your plan has more than 100 participants, you must attach audited plan financial statements to your plan’s Form 5500. The DOL knows which plan auditors perform poor quality audits – and it will be more likely to inquire about your plan.

Use an AICPA Employee Benefit Plan Audit Quality Center member firm to know you are getting a quality audit. Here is a list of member firms.

3. Deposit participant contributions as quickly as possible. Ensuring timely employee deposits is one of the DOL’s top initiatives. DOL regulations require you to deposit participant contributions, including loan payments, to the plan’s trust on the earliest date the contributions can be reasonably segregated from the employer’s general assets. Late deposits are reported on the Form 5500, which can trigger communication from the DOL, and sometimes an audit.

4. Make sure your plan has a proper fidelity bond. An ERISA bond is a policy protecting plan assets. You must indicate if the plan has a bond, as well as the amount of coverage, on you plan’s Form 5500. If your plan doesn’t have bond coverage, you might get communication from the DOL.

5. Respond promptly to participants’ inquiries and requests for information. You must make a number of plan documents available upon request from any participant or beneficiary, including the summary plan description, latest Form 5500, any applicable collective bargaining agreements, the trust agreement and plan document. Because a large number of DOL investigations are based on participant complaints, respond to participant inquiries as soon as possible.

6. Distribute regular, accurate participant statements. Plans must distribute regular benefit statements to participants and beneficiaries. Participants may complain to the DOL if they feel that it’s difficult to obtain statements.

7. Ensure that fees are reasonable and avoid paying expenses with plan assets. The Form 5500 now requires large plans to disclose fees paid to service providers from plan assets. Excessive plan fees are now another investigative issue for the DOL. Consider performing an objective plan benchmark report with a firm that is independent of your plan to show due diligence related to the reasonableness of your plan’s fees.

8. Respond promptly to DOL requests for information. Investigators use Form 5500 filings to select which plans to investigate. Issues that raise red flags include:

  • plans with a large percentage of plan assets invested in real estate
  • limited partnerships
  • noncash contributions
  • loans reported in default
  • unreasonable low rates of investment return
  • an adverse accountant’s opinion
  • notes or disclaimers on the financial statements

9. Use a qualified default investment arrangement (QDIA) in your plan if your plan allows participants to select their own investment allocation. The DOL allows three types of investments to be used as a QDIA:

  1. A balanced mutual fund
  2. A target retirement date mutual fund
  3. A managed account

10. Distribute required participant notices timely. Over the last few years, the DOL passed several laws that require certain participant notices, such as blackout notices, safe harbor notices and automatic enrollment notices. Check with your plan service providers to be sure which of these notices apply to your plan and that these notices are being provided timely and that the process is documented.

Be sure to talk to your trusted tax advisor or retirement plan’s administrative firm whenever you receive communication from the DOL or have any questions about the regulations for any of these issues.

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