Audit Jeopardy!

I’ll take “Odd Pairs” for $1,000, Alex.
Form 5500 and disgruntled employees.
What are the two most frequent triggers of a DOL audit?

Audit Jeopardy! Plan sponsors are playing it, often unknowingly, when they fail to timely file complete and accurate Form 5500’s required for their qualified retirement plans.

Plan Sponsor magazine reports the number one trigger of a DOL audit is 5500 errors, which include unanswered questions, missing schedules, and filings that are late or incorrectly filed.

The un-extended due date for filing Form 5500, required to be done electronically with the DOL, was July 31^st for calendar year plans. However, I expect that most plans, except the smaller and/or simpler ones, filed for an extension until October 15^th, giving employers and their service providers two-and-a-half more months to comply.

Plan Sponsors And TPA

Most plan sponsors have a TPA prepare their filings, which is prudent given the complexity of such an “informational” return. Complete, accurate and timely filings are a shared responsibility between plan sponsor, TPA and plan accountant.

• Plan sponsors need to provide accurate information to their TPA and accountant.
• TPAs need to take diligent care to prepare a complete and accurate return based on the information provided.
• Accountants need to prepare plan audits, if required, in accordance with ERISA guidelines.

Plan sponsors have ultimate responsibility and are the ones incurring the audit risk and late filing fees, so I urge plan sponsors to stay engaged with their service providers and review their filings before they e-sign and file.

Dealing With Disgruntled Employees

Let’s not forget the other half of this odd couple – the disgruntled employee, or often a former employee. These are the people who don’t think they are getting their lump sum distribution fast enough or think their pension benefit should be larger, or don’t understand why they can’t get another plan loan or hardship distribution, etc. They are the bane of every Human Resources or Benefits Manager – or the person wearing those and a number of other hats in a small company.

Despite the desire to ignore these people – especially if they are former employees – is strong and the over burdened small company do-it-all person hasn’t the extra time. However, please be aware that if you continue to ignore these employees’ complaints, it is very likely the DOL will not. Yes, the second top trigger for a DOL audit is complaints from (former) employees.

Double Audit Jeopardy?

Rather than play Double Audit Jeopardy! plan sponsors should make every effort to respond in a timely and professional manner to employee complaints and/or requests for information. Honestly present the facts concerning the situation and the plan’s responsibility to handle in such a manner include copies of or references to the specific plan provisions, relevant sections of the SPD, disclosures on administrative forms and any legal (IRS and DOL) requirements that apply. Also don’t forget to utilize your service provider’s “help desk” and steer employees to the knowledgeable experts who were likely involved with the transaction in question.

Final Jeopardy! Answer: The DOL almost always finds something wrong with your planResponse: Why should plan sponsors make every effort to avoid triggering a DOL audit?

Closing thoughts

Unless they consistently file perfect 5500’s and have the happiest current and former employees in the world, plan sponsors would be well served to self-audit their plans for compliance or engage their TPA or an independent consultant to conduct a compliance audit. And if your 5500’s and every employee you ever had are top notch? Well, there is such a thing as the random audit – from both the IRS and DOL – so periodic compliance reviews are a good idea for all plan sponsors.

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