Avoiding Audits Following Fee Disclosure

 Following the final Department of Labor (DOL) 408(b)(2) and 404(a)(5) regulations, many providers and plan sponsors were unprepared, but there are best practices to avoid an audit.

Tom Loch, senior vice president for Castle Rock Innovations, contended the DOL failed to give clear instructions and sufficient support after passing these regulations; interpretations coming from Employee Retirement Income Security Act (ERISA) attorneys, DOL bulletins and the “rumor mill” left many confused. In the first of a series of webinars hosted by Castle Rock, “Preparing your organization for 2013—Are you ready for The DOL Audit,” speakers discussed best practices for avoiding audits relating to plan fees.

John Sohn, partner at Wagner Law Group, shared steps plan sponsors should take:


  •  Check to ensure providers formalize a procedure for 408(b)(2) notices and updates. This has been a great weapon against the DOL, Sohn said. Before, the department could go after providers about whether compensation was reasonable or fraudulent; now, the 408(b)(2) rule forces services providers to include a great deal of information in all of its notices.
  •  Ensure providers maintain “model” documents reflecting current law. It is risky to have something in the agreement that suggests the provider is not taking the Employee Retirement Income Security Act (ERISA) seriously. They should review request for proposal (RFP) material and ensure it is updated for 404(a)(5) and 408(b)(2), qualified default investment alternative  (QDIA) rules, field assistance bulletins (FABs) and any other guidance. It is  helpful in establishing credibility and is also protective. Also check that the provider drafted a document that cross-references policies to regulation requirements to show that time has been taken to ensure ERISA compliance.
  •  Check that all client service agreements are signed. All investigators will look at this, Sohn said.
  •  Make sure provider responses to Form 5500 information requests look professional, and not something that is done ad hoc.
  • The DOL is essentially looking to see if anything suggests that a provider’s advice or service personnel are acting as functional fiduciaries, including whether they are providing investment advice, even if they do not consider themselves to hold this role. Any compensation a provider receives for this must be level.
  •  Provide ongoing education and training for employees; education is not required by the DOL, but it is a good idea.
  •  Find out if the adviser is using benchmarking, to show reasons for selecting providers.


Each year, the DOL hires department investigators who are specifically devoted to auditing plan sponsors and providers, and it is ramping up the numbers, Sohn said. Historically, the department looked just at plan sponsors, and only investigated providers because of a complaint, Sohn said. Now, the auditing can come from either direction.

The DOL is also heightening its focus on third-party administrators (TPAs) because their services are discrete, Sohn said, and the department will likely expand its attention to recordkeepers and broker/dealers. Now, the department is in information and learning mode, but the new administration and DOL funding will affect what happens next. Regardless, the department will keep looking. While it is not at the point where all providers or sponsors are subject to cyclical audits, the DOL is “taking a lot of its plays out of the SEC [Securities and Exchange Commission] playbook,” Sohn said.

The webinar was hosted by AXIS Retirement Analytics Platform, a retirement information system offered by Castle Rock Innovations to provide 408(b)(2) compliance education. It was the first in a series of monthly webinars about best practices for DOL audits.