SECURE 2.0 and new state mandates regarding retirement plans have meant significant changes for employers in recent years. One of the key achievements was the introduction of a new retirement benefit system.Ann April 2023 Pew Report shows that, for each state, the average share of new employer-sponsored plans was higher after state requirements went into effect and state-sponsored IRAs began enrolling workers. Internal data shows that since his SECURE 2.0 was signed into law in December 2022, Human Interest has seen a nearly 70% increase in his clients seeking to sponsor retirement plans, with nearly half of them for the first time. That was the plan. Cerulli Associates forecasts The rapid growth of 401(k)s is expected to continue, with more than 900,000 people by 2028, or about 230,000 more people than in 2022. This rapid increase is great news. For so many Americans, this means more access to post-career options. .
but, the study Among Human Interest supported companies, legal compliance has consistently been shown to be a top concern for plan sponsors. Entering the world of plan sponsorship means learning new regulations from the Department of Labor (DOL) and the Internal Revenue Service (IRS) to ensure compliance. And like her IRS on taxes, the DOL conducts regular audits of retirement plans. This is done through the Employee Benefits Security Administration (EBSA). The five-year average of funds recovered through EBSA investigations, including audits of 401(k) plans, is $573.5 million (FY2019-FY2023), according to EBSA’s annual fact sheet. In each of these years, more than 65% of investigations involved some type of remedial action or financial restitution.
Labor advocates should applaud this effort on the part of EBSA. The financial gains reflect hard-working Americans getting their incomes back. “Many workers in low-wage jobs may move from job to job, and as a result, often lose track of their retirement accounts,” the EBSA team wrote in its fiscal year 2023 report. “There is a possibility that some companies may go out of business or be acquired.” Some accounts were lost in the shuffle. ” Audits and corrective actions are especially helpful for those who need retirement benefits the most. Still, being the subject of an audit or investigation can cause heartburn for business owners, plan sponsors, or human resources teams responsible for responding to EBSA requests.
Fortunately, preparing for a potential DOL audit is not that difficult. Following these best practices will put your HR leadership team in a good position should EBSA reach out.
Best Practice #1: Conduct a self-audit
The best thing you can do to prepare for a potential audit is to conduct it in-house. Review plan documents, participant notifications, contribution and distribution reports, plan policies, procedures, timing, reports, and limitations. Thoroughly inspect for any red flags or problems. If you notice a mistake, please correct it as soon as possible. Common errors to be aware of are:
- If employee contributions are delayed in being deposited into the plan;
- Failure to hold postponed elections for employees;
- failure to provide required notice;
The IRS uses the Employee Plan Compliance Resolution System (EPCRS) to help you correct mistakes and avoid the consequences of plan disqualification. As you move through the EPCRS process, take detailed notes on the issues and dates associated with their fixes. That way, if the DOL finds any errors, there will be evidence that everything has been or is being addressed.
Best Practice #2: Document all decisions
Even when offering a plan where participants choose their own investments, it is the plan provider’s responsibility to select the funds from which participants can choose. The law requires plan providers to use a “deliberate process” when selecting funds, and allows participants to file breach of fiduciary duty claims if they feel an investment is not the best option. There is sex. If this claim is brought, the plan provider must demonstrate a careful process.
To prepare for this possibility, complete an investment policy statement (IPS) that details how the investments available in your plan will be selected and monitored. Include information about alternative investments and the company’s stance on them. Also, when discussing investment decisions, take detailed notes and minutes and record them in your IPS. Although not a legal requirement, these steps serve as sufficient evidence of a careful process.
Best Practice #3: Keep your records organized
One of the main costs of an audit is time. This is especially true for small HR teams, but spending time on audits can significantly reduce productivity in any organization. One way to reduce the time burden of managing the audit process for HR and other leadership teams is to keep detailed, organized records on hand and up to date. Keep plan records, payroll reports from your payroll provider, and the careful process reports listed above in a secure location where plan administrators and other key company leaders can access them.
Best Practice #4: Consider audit support
There are several ways to find help in the case of a DOL audit. Some attorneys and CPAs specialize in managing audits, and some 401(k) providers have resources to support those undergoing audits. Even if you haven’t tackled an audit yet, it’s a good idea to gather names of companies, law firms, and other resources in preparation. Ask your 401(k) provider for information and help in the event of an audit. Keeping this information and relevant contact information together with other documents will give him one place to turn if EBSA contacts him.
A Department of Labor audit of your 401(k) plan isn’t as scary as you might think. In light of SECURE 2.0 and recent state mandates, more companies across the country are offering retirement options to their employees. This important benefit helps hard-working people build security for their future. This is the ultimate goal for the governing body conducting the audit. By staying organized, following a careful plan selection process, and checking internally for errors, you’ll be ready when the call comes.
