Guiding Light

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 investigators.

“The DOL is really taking this stuff seriously,” Foster says.

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 compliance.
• 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 fiduciary guides.
• 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 opportunity.”