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DOL and IRS Audits: How DWC's Annual ERISA Compliance Review Helps Plan Sponsors

DWC 10/19/17

Our first piece of advice for audited plan sponsors? Don't panic. 

Selection for a DOL or IRS audit doesn't necessarily mean there's a serious issue with your retirement plan. Sometimes government agencies do "field research" to determine how a random sample of plan sponsors is operating a certain plan provision. Whatever the reason, DWC can help you handle government audit requests quickly and correctly. 

The second but most important piece of advice is to be honest and don't hide obvious issues. Government auditors recognize plan sponsors make mistakes, so imagine the two paths a DOL or IRS audit can take when issues arise.

Common Issues We Find in DOL and IRS Audit Prep Work

For the clients we do not provide TPA services for, these are some of the most common compliance issues we find in our government audit prep work:

  • Company contributions reconciliation issues: Prefunded company contributions, such as safe harbor contributions, deposited during the plan year do not follow the formula (eligible participants missed, true-ups required, and some participants have excess contributions).
  • Controlled group issues: Owners without ownership interests whereby the plan sponsor may have a surprise controlled group issue.
  • Plan document issues: The plan document is not up to date for all required government restatements/amendments or the plan is not operating per the plan document.
  • Top heavy: Plans that are top heavy do not make the proper top-heavy contribution. This is extremely common.

As it relates to the plan document, the common errors we see are:

  • Making a company match when the company does not permit a company contribution
  • Part-time employees excluded when they met the eligibility requirement
  • Eligible participants not offered the plan and not providing the company contribution
  • Distributions processed that are not permitted by the plan document
  • Making a company match or profit sharing contribution when the company does not permit the specific company contribution
  • Forfeitures used or allocated impermissibly

Arm Yourself With An Annual ERISA Compliance Review

Existing clients who receive our plan document, compliance, and government reporting services will be well prepared with our Annual ERISA Compliance Review, in which we provide the results of all compliance tests, eligibility review, company contributions, limitations, and controlled group analysis in a well-organized, easy-to-find format to allow the auditor to quickly check things off his or her list.

Key to the success of this report is providing a full census with all employees—regardless of status and complete ownership information. Our compliance report is only as good as the accurate and timely information you send. If you have a provider that is not requesting this information, you may have an issue(s) for every year you are with that service provider.

Plan sponsors that do not have full compliance reports for years they get selected for an audit will need to hire a firm to prepare the compliance report before the audit. This can be more expensive based on the turnaround time, plus, you'll have to pay additional fees for work that should have been done in that compliance year.

Unfortunately, many plan sponsors (or their trusted consultants and advisors without experience) don't have this knowledge until the auditor comes knocking. The common result? Any entity that downplayed compliance services as part of the service provider selection is going to get canned and may be involved in monetary recourse.

Plan sponsors trust their investment advisors and consultants. A service provider who truly knows the rules and regulations is most likely saving the plan sponsor money in the long run, as rework, fines, and penalties can be very expensive. For more information on fiduciary duties and due diligence, visit our Knowledge Center here.

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Topics: DWC, Plan Compliance, IRS Audit, Fiduciary Duties and Due Diligence, Plan Sponsor Requirements


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The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.