VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
2023 Tax Calendar
A review of employee retirement plan audits over the last five years has revealed that Internal Revenue Service (IRS) and Department of Labor (DOL) auditors are increasing their focus on the internal controls employers maintain for their employee benefit plans.
In 2014 alone, the DOL restored nearly $600 million to plans, participants and beneficiaries, $356.2 million of which was attributed to audits triggered by more than 213,000 employee complaints about their benefit plans. Accordingly, the DOL and the IRS has drastically increased and revised its enforcement strategies, which is expected to increase the number of audits in 2015. Due to the uptick in audits, those employers with a company-sponsored plan that might not have been targeted before are now subject to an audit, regardless of size, industry or location.
The focus of recent audit activity and underlying issues of the escalated enforcement seems to be non-compliance within one or more of the following areas:
IRS and DOL plan audits, although both unwanted, vary in their objectives. While IRS audit concentration is on the compliance related to Internal Revenue Code, the DOL audit focuses on violations of ERISA. However, just when you think you passed through the ringer of one agency audit, it is likely the other agency will come knocking based on a referral of uncovered errors or inconsistencies from the first audit.
What to Expect
The DOL spends most of its effort during a plan audit process on determining the compliance with fiduciary responsibilities and timeliness of employee contribution deposits and participant loan payments. Be prepared to provide them, at a minimum, with:
On the other hand, the IRS focuses on tax deduction issues, plan compliance and other various operational issues. Most information requested within an IRS examination is accessible form the plan’s record-keeper and/or third-party administrator (TPA). The audit information likely to be requested includes:
In general, most IRS and DOL plan audits will only require this information going back three years. However, if major errors are identified, it is likely they will look back up to six years or more.
The Audit Process
The DOL and IRS audit processes are strikingly similar. The process begins with a letter requesting numerous documents, which sometimes can be completed electronically. Don’t provide incomplete information, as it could raise warning signs you don’t really know what is going on with the plan. In most cases the next step is an onsite meeting. During this phase, the Employee Benefits Security Administration (EBSA) typically conducts interviews with plan fiduciaries and administrators. Counsel should be available and present during these interviews.
Opening the dreaded letter from the DOL or IRS informing you that your company’s 401(k) or 403(b) plan has been selected for review can cause a state of panic. Looking at the long list of requested documents with a short window of time to provide it can create undue stress. Don’t find yourself in this position by planning what you can now.
3 Ways to Prepare
Typically, the smoother you can make the audit process for the auditor, the less painful the process will be for you overall. Doeren Mayhew shares three ways to help you survive the audit process:
It is best practice to take stock of all required documents occasionally, so that an audit doesn’t consume your time when you don’t have it to spare.
Although the process may be brutal, you will survive the DOL or IRS audit process. Coming out unscathed is the goal, but may not be the reality for you if you’re not properly prepared.
Whether you just finished a plan audit, or managed to avoid one thus far, you should immediately begin preparing for your next potential audit from regulators. Consistent, up-to-date documentation, sound funding practices and an independent annual plan audit will put you in a position to come out on top. Contact Doeren Mayhew’s employee benefit plan auditors in Michigan and Houston to receive your annual plan audit today and avoid costly exam penalties.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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