Although we get most important communications via email in the 21st century, there are still many things that come via snail mail, and a letter from the U.S. Department of Labor (DOL) announcing an audit of an employer’s benefit plans is among them.
“Many employers panic when they get a letter from DOL, and wonder how they were selected,” said Evelyn King, vice president of compliance and operations at ERISA Pros LLC. She was speaking in Indianapolis, at the BenefitsPRO Broker Expo session “How to Survive a DOL Audit,” presented jointly with Erika Medina, Employee Retirement Income Security Act counsel at USI Insurance Services.
(Related on ThinkAdvisor: Preventing and Fixing Broken 401(k) Plans: 12 Common Compliance Errors)
Medina said the first thing employers should do is look at the codes on the letter to understand exactly what plan is being audited. For instance, a letter with a code 53 is a pension plan review and one with a 50 code is a health and welfare plan review.
If the audit requests information about the pension plan, be careful to limit your response only to that plan, Medina cautioned. “Don’t provide more information than strictly necessary.”
Finding Errors on Form 5500
King explained the DOL has a lot more information now that Form 5500s are filed electronically and they can more easily find errors.
“DOL may be acting in response to a targeted program or to a review of a Form 5500 that seems in error,” Medina explained. For example, if a company had 500 employees in 2015, then 1,500 employees in 2016, DOL may want to confirm whether there was an acquisition or whether the number is just a typographical error. “An audit or investigation by another agency might also be a trigger,” she added, “for example, an Internal Revenue Service audit often sparks audits in other areas.”
“Another common trigger,” King pointed out, “can be when the 5500 shows a 401(k) plan but no health and welfare plan. In that situation, DOL will ask the company to provide all applicable plan documents.”
Medina and King both stressed complaints from disgruntled employees are often the impetus for DOL investigations—even when the complaints may be groundless. Another favorite technique of unhappy employees is to discard old plan documents so it’s more complicated to show continuity of plan changes and amendments, King added.