For employee benefit plan sponsors, notification from the Department of Labor (DOL) of a plan audit can be stressful. Afterall, the plan sponsor is responsible for their plan’s full compliance. Led by the DOL’s Employee Benefits Security Administration (EBSA), plan audits have been performed since 2010. There are certain triggers which often lead to an audit. Knowing those, as well as how best to prepare for a DOL audit, is in every plan sponsors’ best interest.
Triggers that Prompt a DOL Audit
There are certain benefit plan deficiencies which can lead to a benefit plan audit. They include:
- Late or incomplete Form 5500 filings
- Payment of improper or excessive service provider fees
- Use of alternative investments
- Late remittances or deposits
- Prohibited transactions
- Plan participant/employee complaints about the benefit plan
Clearly, avoiding these activities are the best way to prevent a DOL audit, but in the event that notice of audit comes, there are important steps that should be taken to prepare.
Preparing for a DOL Audit
To prepare for a DOL EBSA audit, having all of the plan’s documentation in order is a critical first step. This requires also that the plan fiduciaries have been maintaining accurate plan documents, amendments, policies and summary plan descriptions. Among the documents the audit will request are: Summary plan descriptions, certificates of coverage, premium contribution payment schedules, payments made to service providers and other service providers documents, and prior DOL filings.
Another step that should be taken promptly is to acknowledge and address any plan participant’s inquiries and/or complaints. This is especially important as the agency places considerable weight on participants’ interests. It is also important to have on hand documentation showing the plan trustees’ expenses/fees so the auditor can assess their “reasonableness.” Plan sponsors also should be prepared with documentation demonstrating their processes for reviewing and confirming participant and beneficiary data relating to annual filings including Form 5500. Finally, there should be supporting documentation indicating the plan is being managed in accordance with the terms specified in the plan.
Having the Right CPA Firm Can Make the Difference
Findings by the Office of the Chief Accountant of the EBSA found that the quality of benefit plan audit work can vary based on what accounting firm is performing audits under the Employee Retirement Income Security Act of 1974 (ERISA). It found that 61% of the audits did comply with professional standards, perhaps only having minor deficiencies, while 39% or almost 4 out of 10 audits contained major deficiencies. These major deficiencies related to Generally Accepted Auditing Standards (GAAS) requirements and would prompt a Form 5500 rejection. Moreover, the findings revealed a link between the number of employee benefit plan audits a Certified Public Accounting (CPA) firm performed and the quality of the audit. Those CPAs who performed the least number of audits were more likely to have higher deficiency rates, approximately 76%, versus those CPAs that performed the most audits which had deficiency rates of only 12%. This suggests that plan sponsors should be selective with respect to the CPA firms used for their plan audits.
By being proactive and informed regarding DOL EBSA audits, plan sponsors can minimize both the stress and negative repercussions of any missteps in the management of their employee benefit plans.