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Everything an ERISA/401k Fiduciary Needs to Know About DOL Audits to Reduce Fiduciary Liability

September 25
21:23 2009

What most often triggers a DOL audit? What liability exposure does the ERISA/401k fiduciary typically face as a result of a DOL audit? Can a retirement plan fiduciary face criminal charges? What does the DOL auditor expect from the ERISA/401k fiduciary? What are the four critical keys the plan fiduciary should focus on during a DOL audit? Does the DOL have an ideal “Wish List of Materials” they expect an ERISA/401k fiduciary to provide them during a DOL audit?

I was fortunate to share the dais at a recent fiduciary seminar with Paul Holloway, an employee benefits attorney and partner at Harter Secrest & Emery LLP of Rochester, New York. We spoke of strategies the ERISA/401k fiduciary can employ to reduce fiduciary liability. To be honest, most of the plan fiduciaries wanted to talk about investment due diligence, but Paul brought up some very good points about what to do after the horse has left the barn – i.e., once you’ve been informed the DOL has decided to audit your plan.

One common misconception Paul mentioned dealt with the triggering mechanism for the typical DOL audit. According to Paul, unlike the IRS, the DOL generally does not select targets at random. Rather, the DOL relies on three primary impetuses when it comes to deciding who to audit: 1) Participant complaints; 2) Form 5500 issues; and, 3) Media reports. If you think about it, the astute retirement plan trustee can certainly take measures to reduce the likelihood of activating these triggers.

And why would a fiduciary want to do everything to avoid a DOL audit? Well, for one thing, the DOL indicates that 75% of the cases result in monetary penalties. Worse, in 2008 alone, the DOL closed over 200 criminal cases. In other words, once the government comes knocking at your door, there’s a real good chance they’ll leave with another trophy to place on their mantle.

So, should you just pack it in and order new pin stripes (wink, wink) from your tailor the moment the DOL calls? Of course not! The DOL is even kind enough to offer three “key” suggestions when time comes for an audit: 1) Be organized; 2) Be cooperative; and 3) Be helpful. Paul, perhaps a bit wary of any government promise, counters with his own list of four real imperatives for the fiduciary facing a DOL audit: 1) Try to ascertain what triggered the audit; 2) Prepare materials in advance; 3) Review with counsel; and, 4) Have counsel present or available (i.e., know when to call counsel). I’ll add a fifth key: Make sure you have thoroughly documented processes and thoroughly documented reports showing you’re following those processes.

Finally, Paul shared what he called the DOL’s “Wish List of Materials” every ERISA/401k plan fiduciary ought to be prepared to provide during an audit:

  • Plan and Trust (make sure it’s signed)
  • Forms 5500 (with attachments) for the last three years
  • Summary Plan Description
  • Fiduciary Liability Policy
  • Fidelity Bond
  • Trust statements for the last three years
  • Meeting minutes
  • Benefit statements
  • Asset records
  • Payroll contribution records

This top ten list might not make The Letterman Show, but it does provide a good guideline for the average ERISA/401k fiduciary. Certainly, you wouldn’t want to wait until the DOL calls before assembling these materials. In fact, if you pay strict attention to the processes inherent in this list, the DOL may never call at all.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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