How To Avoid A DoL 401k Audit

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

There are many reasons for plan sponsors to do everything possible to avoid a Department of Labor (DoL) 401k audit. They can be costly, time-consuming and generally unpleasant.

The DoL in its Fact Sheet for fiscal year 2016 indicates that the Employee Benefits Security Administration (EBSA) closed 2,002 civil investigations with 1,356 of those cases (67.7%) resulting in monetary penalties/additional contributions. The total amount EBSA recovered for Employee Retirement Income Security Act (ERISA) plan participants last year was $777.5 million.

In my experience, if you receive notification from the DoL that it has an interest in looking over your 401k plan, you need to be concerned. Not only do the statistics above support the fact that DoL auditors do a good job of uncovering problems but in my opinion, they are not an easy group to negotiate with to fix deficiencies.

As a result, I believe the best policy to follow to ensure you don’t receive a visit from a DoL representative is to do everything possible to avoid encouraging such a visit. Here are some suggestions that may help you avoid a DoL 401k audit:

1. Always respond to employee inquiries in a timely way

The most frequent trigger for a DoL 401k audit is a complaint received from a current or former employee. These complaints can originate from employees you have terminated who feel poorly treated or existing employees who feel ignored. Make sure you are sensitive to employee concerns and respond in a timely way to all questions. Keep copies of any correspondence. Be very professional in how you treat those individuals who are terminated – even though in certain instances that may be difficult. Terminated employees who feel they have been mistreated often call the DoL to “get back” at an employer.

2. Improve employee communication

Often employee frustrations come from not understanding a benefit program – or worse, misunderstanding it. If you are aware that employees are frustrated with a plan or there is a lot of behind the scenes discussion about it, schedule an education meeting as soon as possible to explain plan provisions.

3. Fix your plan – now

If the DoL decides to audit your 401k plan, as shown above, it frequently finds something wrong. Many times plan sponsors are aware that a certain provision in the plan is a friction point for employees. Or worse, they know the plan is broken and no one has taken the time to fix it. Contact your benefits consultant, recordkeeper or benefits attorney to address these trouble spots before they cause an employee to call the DoL.

4. Conduct a “mock” DoL 401k audit

Many plan sponsors have found it helpful to conduct a mock DoL 401k audit or hire a consulting firm to do one for them. If management hasn’t been responsive to your concerns about addressing a plan issue, having evidence to share with them that shows an audit failure can be very convincing.

5. Make sure your 5500 is filed correctly

The second most frequent cause of a DoL 401k audit relates to the annual Form 5500 filing. The most common 5500 errors include failing to file on time, not including all required schedules and failing to answer multiple-part questions. Ensure that your 5500 is filed by a competent provider and that it is filed on time. Most plan sponsors either use their recordkeeper or accountant to file their plan’s 5500. Don’t do it yourself. The fees a provider will charge to do the work for you are very reasonable.

6. Don’t be late with contribution submissions

Surprisingly, many employers still don’t view participant 401k contributions as participant money. They are, and the DoL is very interested in ensuring that participant 401k contributions are submitted promptly to the trustee. Be very consistent and timely with your deposits to the trust. Participants will track how long it takes for their payroll deductions to hit the trust. If they aren’t happy with how quickly that happens, they may call the DoL. If you have forgotten to submit a payroll to the trustee, or think you may have been late, call your benefits attorney. There are procedures to follow for late contribution submissions.

A DoL 401k audit is generally not pleasant. It wouldn’t be too strong to say that they are often adversarial. Because a DoL 401k audit is typically generated by employee complaints or Form 5500 errors, auditors have a pretty good idea that something is wrong. Consequently, I recommend that plan sponsors do everything they can to avoid a DoL 401k audit.

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About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception. Copyright © 2017 by Lawton Retirement Plan Consultants, LLC. All rights reserved.

Six New Year’s Resolutions 401k Plan Sponsors Should Make

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

I hope that 2016 was a great year for you and that 2017 will be even better!

A few changes can make your good 401k plan into a great one. To help your 401k plan achieve greatness, consider making the following 401k plan improvements by year-end: [Read more…]

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PSI Newsletter and Website Header 10.2.15

By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

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Why you should be appalled

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PSI Newsletter and Website Header 10.2.15By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Since the Department of Labor released its final fiduciary compliance rules, there has been a tremendous amount of media coverage devoted to what plan sponsors need to know about the new fiduciary regs. Although much of it has been well written with good intentions, most of it has been wrong and has only served to confuse plan sponsors. Based on what I am hearing from plan sponsors, following is what you say you want to know about the new fiduciary regs: [Read more…]

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PSI Newsletter and Website Header 10.2.15By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

On Wednesday, April 6, 2016 the Department of Labor (DoL) issued its final fiduciary regs for investment advisors working with retirement accounts. The rules were aimed specifically at brokers who provide investment advice to clients under the “suitability” requirement (which exempted brokers from being fiduciaries). The issuance of these final fiduciary regs ends a long war that the brokerage industry waged against regulators, employing all manner of threats to avoid fiduciary responsibility (e.g.; small clients will not be able to receive investment advice — absolutely ridiculous) and spending millions on intense political lobbying. Who won? Remarkably, plan sponsors!

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PSI Newsletter and Website Header 10.2.15
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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

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