Avoiding Audits Following Fee Disclosure

October 19, 2012 ( – Following the final Department of Labor (DOL) 408(b)(2) and 404(a)(5) regulations, many providers and plan sponsors were unprepared and caught off guard, but there are best practices to avoid an audit.

By Kristen Heinzinger | October 19, 2012
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Tom Loch, senior vice president for Castle Rock Innovations, contended the DOL failed to give clear instructions and sufficient support after passing these regulations; interpretations coming from Employee Retirement Income Security Act (ERISA) attorneys, DOL bulletins and the “rumor mill” left many confused. In the first of a series of webinars hosted by Castle Rock, “Preparing your organization for 2013—Are you ready for The DOL Audit,” speakers discussed best practices for avoiding audits relating to plan fees.

John Sohn, Esq., partner at Wagner Law Group, shared these steps plan sponsors should take:

  • Check to ensure providers formalize a procedure for 408(b)(2) notices and updates. This has been a great weapon against the DOL, Sohn said. Before, the department could go after providers about whether compensation was reasonable or fraudulent; now, the 408(b)(2) rule forces services providers to include a great deal of information in all of its notices.
  • Ensure providers maintain “model” documents reflecting current law. It is risky to have something in the agreement that suggests the provider isn’t taking the Employee Retirement Income Security Act (ERISA) seriously. They should review request for proposal (RFP) material and ensure it’s updated for 404(a)(5) and 408(b)(2), qualified default investment alternative (QDIA) rules, field assistance bulletins (FABs) and any other guidance. It is not only helpful in establishing credibility, but is also protective. Also check that the provider drafted a document that cross-references policies to regulation requirements to show that time has been taken to ensure all things are ERISA compliant.
  • Check that all client service agreements are signed. All investigators will look at this, Sohn said.
  • Make sure provider responses to Form 5500 information requests look professional, and not something that is done ad hoc.
  • The DOL is essentially looking to see if anything suggests that a provider’s advice or service personnel are acting as functional fiduciaries, including whether they are providing investment advice, even if they don’t consider themselves to hold this role. Any compensation a provider receives for this must be level.
  • Provide ongoing education and training for employees; education isn’t required by the DOL, but it’s a good idea.
  • Find out if the adviser is using benchmarking, to show reasons for selecting providers.