With the U.S. Department of Labor stepping up its enforcement efforts, plan sponsors need to make sure they are in compliance with every rule and regulation when it comes to their retirement plans.
It isn’t enough to just be prepared. When January rolls around, plan sponsors need to know whether they are eligible for an audit and if they are, they need to submit an independent plan audit with their IRS Form 5500.
If a company has more than 100 employees eligible to participate in its retirement plan, it needs to submit a plan audit, completed by an independent public accountant, said Lisa Todd, a CPA and leader of the Employee Benefit Plan Assurance Practice in the Southwest for Moss Adams in Seattle.
The one point that trips up many plan sponsors is that retirement plan head count and health and welfare plan head counts are different, said Bertha Minnihan, a CPA and national practice leader for benefits plans for Moss Adams. For retirement plans, a plan sponsor must count everyone who is eligible to participate in the plan, including those who have retired from the company, as part of their head count. It has nothing to do with how many employees are actually participating in the plan.
Health and welfare benefits plans only count those who are enrolled in the plan.
There are exemptions to an audit. If a company just opened a 401(k) plan in the past six months, it is exempt from an audit until the following plan year, Minnihan said.
The audit includes the plan’s financial statements, but because of the Department of Labor’s involvement it is much more complicated than that. Auditors comb over personnel logs, the plan’s statements and provisions to make sure everything is being done as it should. Are matching contributions being calculated correctly and deposited on time? Are participant contributions being placed into their accounts in a timely manner? Are loans completed and repaid in accordance with plan provisions?
It doesn’t even matter how much money has been misdirected or not deposited into participant accounts quickly, Todd said. If even 50 cents is out of line, it will trigger DOL enforcement, which nobody wants, she said.
One problem that both Minnihan and Todd see frequently is human resources professionals who have been in the business for so long that when they change jobs, they don’t even glance at their new company’s retirement plan provisions, but start doing things as they’ve always done them, at their previous companies.
“For newer employees, they are all running hard, trying to do so much. If you are administering a benefits plan, be aware of the plan documents. Reach out to your plan providers and payroll department and see how things are being done,” Minnihan said.
Lack of communication internally and externally can be a major problem, she said. Many HR systems are not integrated, so unless you go looking for that information, you probably won’t find it out until you get audited or find out from the DOL that you are in violation of their rules.
“When you are first starting out, talk to folks about how the plan is processed. Who are the providers? Read the major documents. If you do that and you are new you may notice things that are not being done correctly,” she said.
If a plan administrator does discover that things are being done incorrectly it is best to begin a voluntary correction plan before the DOL gets involved. The department and the IRS are likely to be more lenient if they see that a plan sponsor has gone ahead and implemented corrective measures before they got involved.
Many plans sponsors don’t understand why auditors, such as those from Moss Adams, spend so much time looking at every aspect of their retirement plan. Many say, “we have few assets so why do you need all of this information?” Todd said.
The reality is the auditors get audited by the DOL as well. “They come in and look at what we are doing as part of the audit,” she said.
Plan sponsors preparing for an audit should prepare their staff how to interact with auditors, Todd said. Gather up all the information you believe the auditors will need, including a package from the third party administrator, trustee statements, census reports, payroll reports and personnel files.
“We will need to look at all of that information because it becomes complicated if (the sponsor) has decentralized operations and there are files across various locations,” she said.
Auditors also need HR personnel standing by during the audit, so “don’t do it during payroll week. We need those people available to us. We need them as a resource. We have a lot of questions for those folks,” she said.
Because everything has become electronic, including report filing, things are moving much faster.
The DOL expects the audit report to be attached to the Form 5500 when it is filed. In the past, a plan sponsor could attach a letter to the 5500 filing saying that the audit has not been completed but is in process and the Department would have accepted that answer, Todd said. “But what we’re finding is that the DOL is not accepting that as a complete filing so our clients are receiving notice three weeks from the filing that it needs to be completed within 15 business days. It is a really fast process. Companies have to respond quickly.”
She added that “companies need to be on time, be prepared and get their audit done by the filing deadline. There is no leeway anymore from the DOL.”
If the audit is completed early, it allows a company to take corrective action before the plan documents are filed with the IRS.
“Our retirement plans are taking a beating in these dismal economic times,” said Minnihan. Her advice to plan sponsors is, don’t give up on your employees. Be more prudent in selecting investments for your plans because nest eggs are shrinking. “It has been a rough ride for retirement plans. Take it seriously. Give it the care and attention it needs,” she said.
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