The Department of Labor (DOL) takes audits of employee plans very seriously.  Over the past few years, the Employee Benefit Security Administration (EBSA) has increased its civil and criminal audits of plans and, in 2011, collected $1.39 billion in fines in the process.  EBSA has recently added several hundred more auditors to its ranks to increase audits.

In light of increased DOL enforcement initiatives, along with the new service provider disclosure requirements and participant investment and fee disclosure requirements which took effect earlier this year, what can plan sponsors do to help ensure that they are prepared if the DOL knocks on their door? 

A DOL audit is time consuming and disruptive of the sponsor’s daily business operations.  If you are notified of a DOL audit, you should consider the types of resources that are necessary to collect, review and prepare the requested documentation, and to otherwise manage the audit process. 

To help prepare for a potential audit, plan sponsors should review their benefit plan documentation to ensure it is up to date and consistent with a plan’s current administrative practice.  This should include:

  • Reviewing plan documents and summary plan descriptions to ensure that they are updated for current legal requirements, as well as how the plans are being administered.  Don’t overlook related plan documents either, for instance, insurance contracts, trust agreements, custodial agreements and administrative service agreements. 
  • Reviewing fidelity bond/fiduciary liability insurance.
  • Reviewing administrative policies and procedures, including participant disclosure notices, loan procedures and forms, withdrawal forms and election materials.
  • Reviewing plan documents and/or corporate governance documents (e.g., board resolutions) to ensure that they accurately reflect the administrative governance in place for the plan.  For example, if an administrative committee has been established to oversee and administer the plan, the plan documents should reflect that and not simply say, for example, that the plan is administered by the company or the company’s board of directors.
  • Ensuring that administrative committee and investment committee minutes have been prepared and are up to date.
  • Considering any plan document, demographic or operational errors that may have occurred recently, and ensuring that those errors were properly corrected through the Employee Plans Compliance Resolution System (EPCRS).
  • Confirming that the new ERISA fee disclosure requirements (including the Service Provider Disclosures and the Participant Disclosures) which became effective earlier this year, have been properly dealt with.  Given the newness of these disclosure requirements and the emphasis that the DOL has placed on them, they will likely be reviewed as part of the audit.
    • All covered service providers needed to have made their initial disclosures to responsible plan fiduciaries of covered plans no later than July 1, 2012.
    • For calendar year plans, the initial annual participant disclosure of plan-level and investment-level information (including fees and expenses) should have been provided no later than August 30, 2012.  The first quarterly statement must be provided no later than November 14, 2012, and need only reflect the fees and expenses actually deducted from a participant’s or beneficiary’s account during the July through September quarter to which the statement relates.
  • For health care plans, confirming that plan documentation and administrative practices are consistent with the changes required under healthcare reform.

What do HR professionals need to know about complying with ERISA?

Without getting into ERISA’s complex and detailed requirements, a key thing for HR leaders to always remember is that a big part of complying with ERISA’s fiduciary obligations is to follow a careful process that is aimed at benefiting plan participants.  ERISA does not require a perfect result on a 20-20 hindsight basis; however, it does require that a careful and prudent process be followed in the administration of the plan.  It is also critical to document the process. 

For example, in choosing investment options for a 401(k) plan, it is not necessary, when reviewed in hindsight, that the selected options out perform all other options that could have been selected.  It is necessary, however, that the investment committee systematically review the investment options and understand their features, including the investment strategies and fee structures.  Then, it is necessary that the committee determine, affirmatively, that the selected options are appropriate and prudent for the plan and in the best interest of plan participants.  This process should then be documented in the form of resolutions, which can be used to evidence and support the process. 

Steps for HR Leaders:  Maintaining compliance with ERISA is an ongoing process that has many time-sensitive deadlines and requirements.  Keep familiar with the regulatory changes and understand the rules that affect your plans now.