Number of Plan Audits Should Be a Wake Up Call for Clients

Nearly one-third of respondents to a Willis Towers Watson survey have had their retirement plans audited by the IRS or DOL, and the rate is even higher among large plans.

More than half (53%) of retirement plan sponsors surveyed by Willis Towers Watson ranked investment volatility as one of their top three current retirement plan risks, while 49% ranked retirement benefit costs as a top concern.

Regulatory compliance was the third top concern (47%), even though the survey revealed that nearly one-third (31%) of respondents have had their retirement plans audited by the Internal Revenue Service or Department of Labor. Larger employers reported an even higher audit rate. Roughly half of employers with at least 25,000 employees have faced an audit over the past two years.

“The fact that one in three retirement plans have been audited should send a wake-up call to many plan sponsors,” says David Speier, senior retirement consultant at Willis Towers Watson. “Regulatory compliance is a top concern, and there is room for a fair number of employers to improve the management of this risk. Proactive reviews of plan operations and compliance processes, for example, should be given a much higher priority at organizations that do not have a structure in place to conduct proactive reviews.”

The survey found 44% of plan sponsors have not conducted an operational compliance review of their defined benefit (DB) plans in the past two years, while 42% have not conducted a similar review of their defined contribution (DC) plans. About one-third of respondents indicated that limited budgets and resources prevented them from conducting a review over the past two years.

Half of sponsors have separate committees for plan administration and investment governance.  Plan sponsors understand that training is a critical component of a strong governance framework. More than half of members are formally trained, either when they join the committee (26%) or on a scheduled basis (36%).

Other findings of the survey include:

  • Almost nine in 10 DC plan sponsors engage a third-party adviser to assist with investment options offered to participants.
  • Thirty-three percent of DB plan sponsors fully or partially outsource at least one aspect of their investment services, and 26% of DC plan sponsors do so. Manager selection and implementation activities are aspects that are most frequently outsourced.
  • More than half of DC plan sponsors monitor the following at least quarterly or more frequently: investment managers, investment goals and objectives, participant asset allocation, fees and expenses, and participation and contribution rates.
  • Very few employers surveyed (2%) have faced fee and stock drop lawsuits over the past two years.
The Willis Towers Watson U.S. Retirement Plan Governance Survey is based on responses from more than 300 U.S. retirement plan sponsors representing a wide range of industries. The survey was conducted in February and March 2016.