DOL Audits: Why Change Isn’t Always Good

Introduction

The Employee Retirement Income Security Act (ERISA) regulates employer-sponsored retirement plans to protect the interests of plan participants.

The Department of Labor (DOL) is responsible for ensuring compliance with ERISA regulations and is particularly concerned with the proper management of plan assets and fees.

While there may not be specific examples of the DOL being directly concerned with a sudden increase in company expenses related to retirement plans, it is crucial for businesses to be vigilant in managing their retirement plan expenses and ensure compliance with ERISA regulations.

A sudden change in expenses, if not adequately explained and documented, could potentially raise red flags and lead to scrutiny from the DOL.

The Prevalence of DOL Audits

Audits are becoming more and more common. Sudden changes in company expenses are just one of the flags that makes your plan more likely for an audit, which can result in a civil investigation.

According to the DOL’s Employee Benefits Security Administration (EBSA), in 2022 there were total recoveries of $1.4 Billion, 907 civil investigations, with 595 (66%) of those cases resulting in monetary results for plans or other corrective action.¹ This highlights the importance of being prepared for potential DOL audits and ensuring compliance with ERISA regulations.

Factors That May Trigger Expense Related DOL Audits

• Mismanagement of Retirement Plan Assets – If a sudden increase in expenses is related to improper use or mismanagement of plan assets, the DOL may investigate to ensure that fiduciary responsibilities are being met.
• Excessive Fees – If the increased expenses are related to fees charged by service providers or plan administrators, the DOL may investigate whether these fees are reasonable and in the best interest of plan participants.
• Prohibited Transactions – A sudden increase in expenses might indicate the occurrence of prohibited transactions, such as self-dealing or conflicts of interest involving plan fiduciaries.
• Discrimination in Plan Benefits – The DOL may also be concerned if increased expenses are related to discriminatory practices in the administration of retirement plan benefits. ERISA mandates that plans must not discriminate in favor of highly compensated employees.
• Other Expenses – The DOL may question new sources of expenses that impact the total cost to plans, such as Auto Expenses, Home Office Expenses, Travel Expenses, and other new one-time expenses.

The Financial Impact of Noncompliance

Noncompliance with ERISA regulations can lead to significant financial penalties. In 2022, EBSA recovered over $1.4 billion in direct payments to plans, participants, and beneficiaries.¹

This underscores the importance of adhering to ERISA regulations and managing sudden changes in company expenses related to retirement plans.

Best Practices for Managing Company Expenses and
Ensuring Compliance

• Maintain Accurate Records – Keep detailed records of all company expenses, including those related to retirement plan administration. This will help demonstrate compliance with ERISA regulations and reduce the risk of triggering a
  DOL audit.
• Regularly Review Plan Fees – Assess the fees charged by service providers and plan administrators to ensure they are reasonable and in the best interest of plan participants.

a. The DOL expects plan fiduciaries to engage in a prudent process to evaluate and select service providers, considering both the cost and quality of services provided.

• Monitor Potential Prohibited Transactions – Review transactions involving plan assets to identify potential prohibited transactions, such as self-dealing or conflicts of interest. If any prohibited transactions are identified, take corrective action immediately.
• Ensure Nondiscrimination in Plan Benefits – Regularly review plan administration practices to ensure that benefits are provided equitably to all eligible employees, regardless of their compensation level.²
• Seek Professional Guidance – Engage the services of a qualified Third-Party Administrator (TPA), accountant, or attorney to help navigate the complexities of ERISA regulations and manage company expenses related to retirement plans.

a. A qualified financial advisor can point you in the right direction.

(1) https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/ebsa-
monetary-results.pdf
(2) Note that New Comparability plans do allow different profit-sharing contributions for different classes of employees, and this is not considered discriminatory.

Staying Ahead of Audit Risks and Maintaining Compliance

By implementing best practices and working with trusted professionals, businesses can manage sudden changes in company expenses related to retirement plans and minimize the risk of triggering a DOL audit.

Proactively monitoring and managing retirement plan expenses demonstrates a commitment to compliance and can help protect both the business and plan participants.

Educate and Train Employees on Compliance

Ensure that all employees involved in managing and administering retirement plans are knowledgeable about ERISA regulations and compliance requirements. Your trusted TPAs and financial advisor can assist and provide guidance in this area.

Regular training sessions and updates on any regulatory changes will help maintain a culture of compliance within
the organization.

Leverage Technology for Enhanced Compliance Management

Utilize technology platforms to track and manage company expenses, retirement plan administration, and compliance with ERISA regulations.

Many TPAs and financial advisors offer digital tools that enable businesses to monitor fees, investment performance, and plan participant engagement, providing valuable insights to inform compliance strategies.

Regularly Review and Update Company Policies

Establish and maintain clear policies and procedures related to retirement plan administration and company expense management. Periodically review these policies to ensure they remain up to date with current regulations and industry
best practices.

Stay Informed of Regulatory Changes and Industry Trends

Keep abreast of any changes to ERISA regulations, as well as trends and developments in the retirement plan industry. Staying informed will help businesses adapt their practices to maintain compliance and minimize audit risks. Your trusted TPA, financial advisor and online resources can help provide timely information on changes as they occur.

Develop a Strong Relationship with Your TPA and Financial Advisor

A trusted financial advisor and TPA can play a crucial role in helping businesses navigate the complexities of managing company expenses related to retirement plans and maintaining compliance with ERISA regulations.

They can provide expert guidance on best practices, review current processes, and recommend improvements to minimize the risk of noncompliance and audits. Seek a second opinion from a financial advisor that understands and has expertise in Employer Sponsored Retirement Plans.

Benefits of Proactive Compliance Management

Taking a proactive approach to managing company expenses related to retirement plans and ensuring compliance with ERISA regulations can yield significant benefits, such as:

• Reduced risk of DOL audits and potential penalties.
• Greater peace of mind for business owners and plan fiduciaries.
• Enhanced retirement plan outcomes and participant satisfaction.
• Improved reputation and trust among employees and clients.

Embrace a Comprehensive Approach to Compliance Management

Managing company expenses related to retirement plans and ensuring compliance with ERISA regulations is an ongoing process that requires diligence, adaptability, and collaboration with trusted professionals.

By embracing a comprehensive approach to compliance management, businesses can protect themselves and their plan participants from potential audit risks and set the stage for long-term success.

Confidence Wealth Management specializes in assisting employers, trustees, and human resources professionals with obtaining an independent and objective evaluation of their current employer-sponsored retirement plan, it’s compliance and performance) and establishing a new, properly structured plan when needed.

We advise them on strategies to mitigate the risk of costly mistakes and overlooked plan components that could cause problems with the Department of Labor, their employees, or regulatory bodies.

Our firm focuses on optimizing plan design and implementing retirement plan services that guide you towards your goals.

To schedule an appointment and discuss your situation, click below or call us at (310) 820-4411.