Is Your 401(k) Plan Ready for a DOL Audit?

No one likes to go through an audit. The process is tedious and a significant interference to both your life and your business operations.

Yet, whether it’s a personal tax audit or a Department of Labor (DOL) audit on your company’s 401(k) plan, there is one key to lessening the impact of the audit process — preparation.

One of the primary functions a qualified 401(k) plan advisor should perform is making sure each client is prepared for an audit when the time comes. And, like being called for jury duty, you should expect your time to eventually come.

In fiscal year 2013, over 70% of the 3,677 401(k) plans audited by the DOL were found to have some kind of a violation that lead to a fine. Not only were there fines levied, but a number of officers or directors from these companies were indicted for fiduciary breaches. Many of these violations are easily preventable if you surround yourself with qualified experts who provide sound advice.

One of the primary triggers for a DOL audit is an employee complaint. Therefore, one of the most basic things you can do to prevent an audit is to make sure you respond to employee requests about the plan in an expedient manner. The second most common trigger for an audit is an issue or error found on the Form 5500. Working with a quality record keeper or TPA (third-party administrator) is extremely helpful to prevent these kinds of mistakes.

Generally, if your plan is going to be audited by the DOL, they will be looking for some very specific things that tell them whether or not you and your plan committee are fulfilling your fiduciary obligations. Some of these items may include:

  • Operation of your plan in accordance with the plan document
  • Submitting payroll contributions in a timely manner
  • Compliance with 408(b)(2) fee disclosure regulations
  • Avoidance of prohibited transactions
  • Following the terms of the plan’s Investment Policy Statement (IPS)
  • Keeping detailed minutes of plan committee meetings
  • Following the plan’s definition of compensation
  • Ensuring that no eligible employees are being excluded

All of the above issues are easily fixed and controlled. And, ideally, you want to make sure you are doing each of them correctly before an audit is called. A specialist advisor who is experienced working with 401(k) plans can help identify red flags that might trigger an audit or lead to a fine or fiduciary breach. The cost of non-compliance is high, and hiring a 3(38) Fiduciary can help ensure you and your plan stay on the DOL’s good side.