How Advisers Can Help Sponsors Avoid Plan Audits

With the number of retirement plan audits expected to rise, plan advisers should be proactive in helping plan sponsors avoid hefty fines.

Tom Foster, ERISA attorney and vice president/national spokesperson for The Hartford’s Retirement Plans Group, told PLANADVISER that statistics from the Department of Labor (DoL) indicate more plan audits are on the way. Under the DoL’s budget for Fiscal Year 2010, it expected to hire nearly 1,000 new employees, including about 670 investigators.

“The DoL is really taking this stuff seriously,” Foster said.

An estimated 70% of retirement plans audited by the Department of Labor (DoL) in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors, according to the DoL. 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 a 5500 form.


Some plan sponsors assume the third-party administrator (TPA) is taking care of these things, according to Foster. “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 said.

Foster suggests plan advisers do the following to help plan sponsors avoid audits:  

  • Present statistics: Show plan sponsors statistics on how many plans were fined, the cost of fines, and so on. Bringing awareness to plan sponsors helps them avoid complacency. Some plan sponsors think there are no repercussions, but sharing statistics makes them aware of the adverse consequences of falling out of compliance, Foster said.
  • Provide helpful materials: The IRS publishes a list of the most common mistakes in a 401(k) plan and how to fix them. Foster suggests advisers 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 and services advisers can use to educate plan sponsors on how to avoid audits. “I always say to advisers, ‘As long as you have a client who has a need, don’t walk away from it because you feel you don’t have the tools,’” Foster said.
  • Conduct reviews: Foster suggests advisers conduct reviews at least semi-annually to monitor whether a plan is compliant. “Absolutely no less frequent than annually,” he added.
  • Make the plan sponsor feel comfortable: If an adviser can make a plan sponsor feel comfortable, the adviser creates credibility, which can be a powerful prospecting tool. Taking an active role in the overall plan wellbeing rather than just the investment side is a crucial part of being a good adviser, Foster stated. “One of the greatest tools we have as an adviser is credibility,” he said. “[This] is a credibility-creating opportunity.”