PSNC 2019: Be Prepared for a DOL Audit

Having processes in place and following published Department of Labor (DOL) guidance are a couple of things plan sponsors can do to be prepared for an audit.


(From left) James Robison, Strategic Retirement Partners; Jania Stout, Fiduciary Plan Advisors; Robert Covin, Milliman. Photograph by Matt Kalinowski

According to James Robison, managing director, Strategic Retirement Partners, one of the most common steps that leads to a Department of Labor (DOL) audit is an employee complaint. “That’s the employee you want to appease and the one you want to help understand how the plan operates,” he said. “Many times, they may submit a complaint to the DOL—they may have a disagreement about a plan distribution or a hardship withdrawal, for instance. Regularly scheduled participant education can help dissipate that.”

In addition, Robison said, the DOL may have a target initiative. One big target initiative is fees. Or it could be that the Form 5500 Schedule C looks out of whack. Jania Stout, practice leader, co-founder, Fiduciary Plan Advisors, said, if there’s a dramatic change on the upside indicated on Schedule C, that’s a red flag. The DOL will want to understand what happened.

Form 5500 has trap doors throughout, depending on how it is filled out—for instance, if last year’s ending balance does not match this year’s beginning balance or if the number of assets in the plan is incorrect.

Robert Covin, benefits consultant, at Milliman, agrees that fees, or the prospect of excessive fees, can be the road to litigation. Certainly the timeliness of deferrals can be another. “There are employees who look carefully to see that deferrals go in, and if it’s off by a matter of days from the norm, you can expect someone knocking on your door,” he said.

What best practices can a plan sponsor follow in advance of a possible DOL letter? “Some of this is just common sense and good governance,” Stout said. “You don’t do this because you want to prepare for your DOL audit; it’s about having good housekeeping of all of your items.”

Occasionally, when onboarding a new mid-size plan sponsor client, Stout will see unsigned amendments to the plan and summary plan documents (SPDs) that have not been kept up to date, she said. These are things the DOL will be checking for.

Documenting committee notes is also very important, according to Stout. “Documentation and keeping records are hard jobs—jobs that advisers can help with. Keeping a shared document file for the committee to have access to is key—having one keeper of the files can be tricky, with potential staff turnover.”

Taking meticulous committee notes and sticking to the facts is important, as is following DOL guidance, Covin said. The DOL has publications and information, including on fiduciary responsibilities, selecting consultants and selecting a target-date fund (TDF), among others. “If the DOL has made the effort to put this content on its website, you should follow it—and document that you did,” he said.

One of the Stout team’s best practices is displaying the DOL tips at every client quarterly meeting and following a process to check that all suggested tips have been followed. “If the DOL does come in, you are prepared—the process doesn’t need to be created after the fact,” she said.

Covin stressed the importance of following the plan’s investment policy statement (IPS) when selecting funds. “It’s best if an IPS is somewhat general. Don’t narrow it too much. It can trap you in. And make sure you have a procedure in place for how you’ll select investment options, how to measure the funds considered and how to remove them.”

One thing the DOL wants to see is that, during the last 24 to 36 months, committee members have had fiduciary education. Robison said that’s another thing it inquires about in a letter. If committee members have not undertaken formal fiduciary education that is codified as to what was covered and the dates it was completed, this will be a problem. If the members did have the education but it was not noted in committee minutes, those can be backfilled. If they did not receive the education, it’s important to reach out to your advisory firm or law firm.

Stout said, “Having good governance is a good habit at all times. The DOL is there to protect the worker. If you think about how they could be harmed, that will help you be ready. They could be harmed if they weren’t made eligible for the plan, if they didn’t receive an employer match they should have received, if you didn’t evaluate fees properly and they paid excessive fees. Good everyday governance prepares plan sponsors for a DOL audit.”