October 19, 2012 (PLANSPONSOR.com) – 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.
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
- 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.