With a budget deficit running so high, our federal government is starved for additional revenues. The question in the back of everyone’s mind is: how do they raise revenues without the dreaded tax increase?
The Answer: through fees and fines – specifically through 401k audits.
To achieve this, the DOL has hired an additional 1000 auditors. It has now become not a matter of if, but a matter of when a 401k plan will be audited.
The goal for these auditors is to find infractions that result in fees, fines or reimbursements for plan errors. The bad part is that in spite of working for the government, they are very good at their jobs.
In 2013 alone, 75% of the plans audited resulted in an assessment. This resulted in big money for the federal government. The average fine was $600,000 per plan, nearly 4 times the average fine assessed in 2009.
What has happened to cause this?
Recent law changes with respect to sponsor responsibilities and disclosure have created new sets of hurdles for plan sponsors to clear. What was once compliant 5 years ago may not be compliant now.
There is a big focus on plan fees. They must be “usual and customary.” So, what to do? The best course of action is to have a plan benchmarked at least every 3 years – even better, annually. Other types of coverage are already benchmarked, why not the 401k? Having a written record in the file when the DOL comes knocking at the door is a good thing.
Other areas of focus for the DOL are:
Timely remittance of contributions
Correct eligibility and vesting calculations
Following the Investment Policy Statement
Increasing Forfeiture Accounts
Timely handling of Participant request such as loans and hardship withdrawals
Adherence to the Plan’s specific provisions
Documentation of Plan meetings and corresponding minutes
All plan amendments signed and dated
Proper application of break in service rules
Miscalculations of employee contributions, matching or profit sharing
The DOL has many tools at their disposal to trip plan sponsors up and generate fines. The best protection is to have the plan thoroughly reviewed and benchmarked by a competent professional. Contact your Retirement Specialist for guidance as to how you can be more helpful and proactive for your clients, before the DOL comes knocking at their door.