By Mark Olsen, Managing Director at PlanPILOT
For retirement and benefit plan sponsors, a Department of Labor (DOL) audit is normally not a welcomed event. Audits, though, are designed to make sure plans such as 401(k)s, 403(b)s, and pension programs are administered properly and comply with ERISA and tax rules.
Under ERISA, the DOL enforces fiduciary and reporting standards. Every covered plan must file an annual Form 5500, and plans of 100 or more participants must include an independent audit as part of their policies and procedures.
At PlanPILOT, “plan governance” is a core service we deliver to our plan sponsor clients. In our view, having a well-designed program with efficient documentation procedures and fiduciary training can help mitigate and avoid issues with ERISA regulations and auditors.
Let’s take a look at how sponsors can plan and prepare for the inevitable audit examination.
Prepare to Succeed
Plan sponsors should first establish robust internal controls and proactively organize comprehensive documentation. The best approach is to maintain compliance with ERISA regulations ahead of time and have a systematic, audit-ready recordkeeping system in place.
Internal Preparation
Effective internal preparation focuses on ongoing compliance and organization, not just a last-minute scramble.
- Designate a point of contact: Appoint one primary internal contact to manage all communications and document requests.
- Engage legal counsel and advisors: Consider engaging experienced ERISA legal counsel and experienced plan consultants. Consultants can assist in documentation preparation and advise on audit procedures and responses while attorneys can provide guidance, representation, and help maintain attorney-client privilege.
- Conduct self-audits: Periodically review plan operations against plan documents and regulatory requirements to identify and correct issues proactively. Utilize plan consultants and use periodic “mock audits” to test the program’s procedures and documentation.
- Establish strong internal controls: Implement and document clear policies and procedures for all plan activities, including eligibility, contributions, distributions, and loans.
- Document fiduciary meetings: Maintain detailed minutes of all board and/or administrative committee meetings where plan decisions (e.g., investment choices, fee reviews, service provider selection) are discussed and approved.
- Ensure proper bonding: Annually verify and document that all individuals who handle plan funds or property are covered by an adequate ERISA fidelity bond (typically at least 10% of the funds handled, with a minimum of $1,000 and generally a maximum of $500,000 unless the plan holds employer securities).
- Communicate with service providers: Confirm that third-party administrators (TPAs), recordkeepers, and other vendors can readily provide their records or a SOC 1 report upon request.
Keep Essential Documentation
The DOL typically sends an initial letter outlining the required documentation. Having these items organized and readily accessible helps streamline the process.
- Plan Legal Documents
- Executed Plan Document and all amendments
- Summary Plan Description (SPD) and any Summaries of Material Modification (SMMs)
- Current IRS determination or opinion letter
- Trust Agreement
- Financial and Operational Records
- Prior years’ Form 5500 filings, including all associated schedules (e.g., Schedule H/I, Schedule A, Schedule C) and the independent auditor’s report (if applicable)
- Plan financial statements, general ledgers, account statements, and ledgers
- Payroll records and employee census data (list of all employees, including hire dates, compensation, and demographics)
- Detailed records of contributions remitted to the trust, by pay period, with proof of timely deposit
- Documentation of participant activity (enrollment forms, loan agreements, distribution paperwork)
- Service Provider and Compliance Documentation
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- All contracts and service agreements with plan providers (TPAs, investment managers, etc.), including fee schedules and compensation details
- The plan’s Investment Policy Statement (IPS) and documentation of adherence to a prudent process for selecting and monitoring investments
- Results of non-discrimination testing (ADP/ACP, top-heavy, coverage)
- Proof of the plan’s fidelity bond and fiduciary liability insurance policies
By proactively preparing this documentation and establishing clear internal procedures, plan sponsors can navigate a DOL audit efficiently and demonstrate a strong commitment to their fiduciary responsibilities.
When the Audit Notification Arrives
An audit of your retirement plan typically involves a thorough, multi-stage review of your plan’s compliance with the ERISA regulations, focusing heavily on documentation, fiduciary practices, and participant interactions. The process can take weeks to several months, depending on the complexity of the plan and any issues found.
The Audit Process: Step-by-Step
- Initial Contact: You will receive a formal letter from the DOL’s Employee Benefits Security Administration (EBSA) notifying you of the audit and requesting a comprehensive list of documents to be submitted by a certain date.
- Document Submission & Review: You must gather and provide extensive documentation, including plan documents and amendments, Form 5500 filings, payroll records, participant communications (e.g., Summary Plan Descriptions), and records of fiduciary meetings. An auditor will review these records and may request additional information.
- On-Site or Virtual Interviews: The investigator may conduct interviews with plan fiduciaries, administrators, and potentially even participant-employees to verify that actual operations match the plan’s written documents and legal requirements.
- Findings & Resolution
- No Violations: You will receive a formal closing letter stating the investigation is complete.
- Violations Found: EBSA will issue a letter detailing the violations and asking plan officials to voluntarily correct them. This may involve using programs like the Voluntary Fiduciary Correction Program (VFCP) to correct certain fiduciary breaches.
- Penalties and Closing: After corrections are made and any penalties are paid, EBSA will issue a final closing letter. If plan sponsors refuse to cooperate or if the violations are severe (e.g., fraud), the case can be referred for litigation.
Key Areas of Focus
Auditors will primarily focus on:
- Timeliness of contributions: Ensuring employee deferrals and loan repayments are deposited into the plan’s trust as soon as administratively possible (but no later than the 15th business day of the following month)
- Fiduciary oversight: Verifying plan fiduciaries are acting in the best interest of participants by prudently selecting and monitoring investments, ensuring reasonable fees, and documenting all decisions
- Compliance with plan documents: Confirming that the plan’s operations (e.g., eligibility, vesting, distributions) strictly adhere to the terms outlined in the official plan document
- Reporting and disclosure: Checking that all required filings (Form 5500) were complete and timely, and all required participant notices were distributed
What to Do Initially
Your best initial response would be to cooperate promptly: respond to information requests quickly and professionally. As mentioned, designate a single point of contact to streamline communication with the investigator. Consult with your experienced legal counsel and plan consultant to help navigate the process.
Are You Prepared for a Visit From the DOL?
No one likes to learn they have been selected for a DOL audit, but knowing your plan is well-designed, compliant with ERISA regulations, and operating smoothly can provide confidence and assurance that the result of the audit will likely be a “No Violation” closing letter.
At PlanPILOT, we’re creating the standard for client experience. Independent and impartial by design, we apply our skill to every facet of plan development, governance, and implementation to help you enjoy meaningful results. Our client partnerships are built on trust, communication, and responsibility—cornerstones of a healthy, prosperous relationship. We’re committed to providing objective guidance, informed innovation, and an integrated approach tailored to your unique objectives.
Our team of seasoned professionals upholds the highest professional standards, so every strategy we recommend aims to support both your organization and the participants who depend on it.
Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.