Illustration by You Jung Byun
With the number of retirement plan audits expected to rise,
plan advisers should be proactive in helping plan sponsors avoid hefty fines.
Tom Foster, Employee Retirement Income Security Act (ERISA)
attorney and vice president and national spokesperson for The Hartford’s
Retirement Plans Group, says that statistics from the Department of Labor (DOL)
indicate more plan audits are on the way. Under its budget for fiscal 2010, the
department expected to hire nearly 1,000 new employees, including about 670
“The DOL is really taking this stuff seriously,” Foster
An estimated 70% of retirement plans audited by the Labor
Department in 2009 and 2010 were fined, received penalties or had to make
reimbursements for errors, the department reported. DOL statistics show the
agency achieved $1.08 billion in corrections, reinstatements and fines.
Foster cited common mistakes made by plan sponsors, such as
failing to: follow the plan document; bring new employees into the retirement
plan in a timely manner; follow loan provisions properly; submit referrals on a
regular basis; and file Form 5500.
According to Foster, some plan sponsors believe the
third-party administrator (TPA) handles these things. “There’s an assumption
[by plan sponsors] that someone else is doing it for them and that it’s not
really their fault, per se,” he says.
Foster suggests that you do the following to help your plan
sponsors avoid audits:
Present statistics. Show plan sponsors statistics on how
many plans were fined, the cost of fines and so on—creating awareness helps
them avoid complacency. Some plan sponsors think there are no repercussions,
but showing them statistics proves the adverse consequences of falling out of
Provide helpful materials. The IRS publishes a list of the
most common mistakes in a 401(k) plan and how to fix them. Review this list
with plan sponsors and provide them with any other helpful materials and
Utilize the provider’s resources. Providers have tools you
can use to educate plan sponsors about how to avoid audits. Do not walk away
from a client’s need because you feel you lack the tools.
Conduct reviews. Examine your plans at least
semiannually—and absolutely no less than annually—to monitor for compliance.
Through the process, make the plan sponsor feel comfortable. Doing so enhances
your credibility, which can be a powerful prospecting tool. Taking an active
role in the overall wellbeing of a plan, not just the investment side, is
crucial to being a good adviser, Foster says. “One of the greatest tools we
have as adviser[s] is credibility. [This] is a credibility-creating