You can survive a DOL auditwithout panicking. (Photo: Shutterstock)

|

INDIANAPOLIS — Although we get most important communications viaemail in the 21st century, there are still many things that comevia snail mail, and a letter from the U.S. Department of Labor (DOL) announcing anaudit of an employer's benefit plans is amongthem.

|

"Many employers panic when they get a letter from DOL, andwonder how they were selected," said Evelyn King, J.D., vicepresident of compliance and operations, ERISA Pros LLC. She wasspeaking at the BenefitsPRO Broker Expo session "How to Survive aDOL Audit," presented jointly with Erika Medina, ERISA counsel, USIInsurance Services.

|

Medina said the first thing employers should do is look at thecodes on the letter to understand exactly what plan is beingaudited. For instance, a letter with a code 53 is a pension plan review and one with a 50 code is ahealth and welfare plan review.

|

If the audit requests information about the pension plan, becareful to limit your response only to that plan, Medina cautioned."Don't provide more information than strictly necessary."

Finding errors on Form 5500

King explained the DOL has a lot more information now that Form5500s are filed electronically and they can more easily finderrors.

|

"DOL may be acting in response to a targeted program or to areview of a Form 5500 that seems in error," Medina explained. Forexample, if a company had 500 employees in 2015, then 1,500employees in 2016, DOL may want to confirm whether there was anacquisition or whether the number is just a typographical error."An audit or investigation by another agency might also be atrigger," she added, "for example, an Internal Revenue Serviceaudit often sparks audits in other areas."

|

"Another common trigger," King pointed out, "can be when the5500 shows a 401(k) plan but no health and welfare plan. In thatsituation, DOL will ask the company to provide all applicable plandocuments."

|

Medina and King both stressed complaints from disgruntledemployees are often the impetus for DOL investigations—even whenthe complaints may be groundless. Another favorite technique ofunhappy employees is to discard old plan documents so it's morecomplicated to show continuity of plan changes and amendments, Kingadded.

|

In one case, Medina said, an investigator went to a spa for amassage and saw an unusual poster on the wall about employeebenefits, which piqued her interest. In another case, aninvestigator was in a sandwich line at a deli listening to a groupof nurses in front of him discussing proposed changes to theirpension plan from a local hospital that didn't seem right to them;he followed up with the hospital, launching a full audit.

|

Third parties can affect confidentiality

Most employers rely on third-party vendors to administer theirbenefit plans or on consultants to help design the plans. It can betempting to contact the vendors or third-party administrators(TPAs) to provide information as part of the audit, but be carefulwhen communicating with them, Medina advised. Conversations withthe company's attorney preserves any attorney/client privilege, butthe privilege may be waived, depending on how the communicationswith the third-party vendors takes place.

|

King reminded the audience there might also be an inherentconflict of interest between the employer and the third parties ifthe audit finds that the vendor or consultant was at fault. Eventhough the employer may be entitled to indemnification, the vendoris likely to be taking care of its own issues with DOL first.

|

Both speakers agreed high-profile organizations can affect theresults of an audit — or even whether the audits go beyond aninvestigation letter in the first place.

|

"Facts and circumstances are very influential," Medina said. "Ifa company has a well-known name — even if it's a small company — ithas a high risk of being audited."

|

"The employer is always responsible for any violations," Kingemphasized, "even when the third party caused the violation. Theemployer has to write the check, and DOL is a money-making agency."Many departments within DOL are evaluated on how much they collectin fines and penalties as part of the enforcement process, Medinaexplained.

|

You can survive a DOL audit without panicking. Rememberto provide only the information requested — after consulting yourattorney, of course.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Rosalie Donlon

Rosalie Donlon is the editor in chief of ALM's insurance and tax publications, including NU Property & Casualty magazine and NU PropertyCasualty360.com. You can contact her at [email protected].