Employee Benefit Plans: Department of Labor Audit Triggers & How to Avoid Them

Posted by Marisa Jue on Oct 19, 2015 9:06:52 AM

All companies employee benefit plans can be subject to a U.S. Department of Labor (DOL) audit at any time. Traditionally, the DOL has had the authority to conduct an investigation of your company’s employee benefits plan anytime to ensure it is in compliance with the Employee Retirement Income Security Act (ERISA).  But over the past couple of years, the DOL’s Employee Benefits Security Administration (EBSA) has expanded its scope to include enforcement of the ever-expanding Affordable Care Act (ACA) regulations. All of this means you need to take even more precautions and be better prepared than ever. 

Data from audits of retirement plans in 2013 reveal that 75% of those audit investigations resulted in penalties and required some corrective action. Corrective actions resulted in major payouts and lost profits.

In this post we want to make you aware of the most common audit triggers and how you can prepare for an audit or, ideally, avoid one altogether.


Audit Triggers

Unlike the IRS, which can conduct audit investigations at random, DOL audits are triggered by an event of some sort. Some of these you can control and others which you can't.

DOL Investigations: National Enforcement Priorities and Projects

The DOL has several national enforcement projects in place that focus its investigative resources on specific issues. A DOL audit can be triggered because your plan falls within one of these priorities or projects. You might not actually be at fault, assuming that the plan(s) in question are in compliance with the ERISA and ACA. Priority areas for the DOL currently include:

  • Major Case Enforcement – One area of investigation of the EBSA is focusing on major cases that will, in theory, protect plan assets and participants’ benefits.
  • Employee Contributions Initiative – EBSA also focuses on delinquent employee contributions to help protect employee contributions to their 401(k), healthcare, and other plans.

These are examples of the current investigative projects:

  • Contributory Plans Criminal Project
  • Fiduciary Service Provider Compensation Project
  • Health Benefits Security Project
  • Rapid ERISA Action Team
  • Employee Stock Ownership Plans
  • Voluntary Fiduciary Correction Program

Common Audit Triggers

The most common triggers for DOL audits are:

  • Participant complaints - If any of your employee benefits plan participants reach out to the DOL with complaints about potential ERISA violations, your plan is likely to be subject of an audit. According to a DOL audit summary, 775 of the new investigations in 2013 were the result of participant complaints.
  • Incomplete or Inconsistent Information on Form 5500 – The DOL is more likely to investigate an employee benefit plan with incomplete answers on its Form 5500, or if the information reported is inconsistent from year to year.
  • If the IRS has previously audited you, they might decide to refer your case to the DOL.
  • Additionally, if you are being audited as part of a multiemployer plan, it could be because your enterprise has failed to perform payroll audits. According to Ian Dingwall, Chief Accountant for EBSA, failure to perform payroll audits is the number one reason multiemployer plans come under DOL scrutiny.

So what can you do to avoid potential DOL audit triggers?

Prevention and Preparation

Obviously, the best way to avoid a DOL audit is to make sure that your company is not subject to one in the first place. There are several steps you can take to minimize your risk of a DOL audit:

  • Respond to all participant questions and requests for information about benefits in a timely manner.
  • Make sure to correctly complete Form 5500 in its entirety and submit it on time.
  • Provide participants with legally required notices, such as a Summary of Benefits and Coverage.
  • Keep plan documents and summary plan descriptions up to date to reflect current legal and design changes.
  • Perform regular payroll audits to catch potential reporting and processing errors.
  • Self-audit other human resources processes, such as employee job descriptions, Fair Labor Standards Act classifications, and stay in compliance with the latest federal and state employment laws.

If you can't avoid an audit, and you have already been contacted by the DOL with a notice of an upcoming audit, here are also a few things you can do to prepare.

  1. Contact the auditor. Although the DOL typically gives little advanced notice of an audit, you can work with your auditor to request time for document collection and to better understand the scope of the investigation.
  2. Gather requested documents and review them for accuracy. If you find discrepancies in the documentation, consider what you will share in your explanation. Make copies of all requested information.
  3. Designate one person to act as company representative and primary contact with the auditor. Some choose to designate their legal counsel for this position, while others assign a key senior manager.
  4. Designate an area for the auditor to utilize during the audit process. Additionally, prepare all other staff for on-site visits and interviews.
  5. Inform legal counsel of the coming audit process. If your company does not have legal counsel already, it is strongly recommended that you contact an ERISA qualified attorney to help you through the process.

What have been your experiences with DOL employee benefit plan audits? Do you have any recommendations for surviving or preventing DOL audits?


Sources: 1, 2, 3, 4, 5; Images from iStock by Getty Images

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