How to Avoid a 401(k) Plan Audit

How to Avoid a 401(k) Plan Audit

In 2015, the Employee Benefits Security Administration (EBSA), through its enforcement of the Employee Retirement Income Security Act (ERISA), recovered $696.3 million for direct payment to plans, participants and beneficiaries. They closed 2,441 civil investigations, 275 criminal investigations and 201,000 inquiries through the informal complaint resolution process. The later resulted in $402.9 million restored to U.S. workers. To say the Department of Labor (DOL) and EBSA were busy would be an understatement.

If you’d like to avoid landing on their hit list in 2016, take these steps to avoid a DOL audit of your employer-sponsored 401(k) plan.

  1. Always be responsive. DOL audits are often triggered by employee complaints. Promptly respond to all retirement plan questions you receive. Should you need to part ways with an employee, do so as professionally as possible. Terminated employees who feel that they’ve been treated unfairly are among the most likely to register a complaint with the DOL.
  1. Improve your benefit communication. Retirement plans can be confusing, and accompanying documentation that is incomplete or difficult to understand can frustrate employees and lead to DOL complaints. In addition to annual benefit education meetings, consider addressing 401(k) plan questions at other employee meetings and/or your company newsletter.
  1. Fix any problems before as soon as you find them. This includes tracking down lost participants, dealing with uncashed distribution checks, and properly accounting for ERISA spending account expenses. Miscalculation of contribution amounts and profit sharing as well as failing to enroll or vest employees on time can also trigger an audit.
  1. Conduct your own audit. Whether you do so yourself or hire a consultant to do it for you, an internal audit can be helpful in identifying potential issues with your 401(k) plan.
  1. Correctly file your 5500. While employee complaints are the most common cause of DOL 401(k) plan audits, errors on your annual Form 5500 are a close second. By some accounts, the most common errors include failing to answer multi-part questions, forgetting to attach the required schedules, and ignoring EFAST 2 Electronic Filing Guidance. Failing to file on time will also catch the attention of the DOL.

Are you concerned about your employer sponsored 401(k) plan? If so, we can help. Contact us today to learn more about retirement plan compliance, Form 5500 filing, DOL audits and the importance of benefit communication.

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