Do you have an employee benefit plan that falls under federal ERISA laws? If so, you’re probably familiar with the web of regulations that you must meet to stay in compliance. Auditing your plan on a regular basis may be required. The Department of Labor regularly examines company plans to make sure they’re complying with even the most obscure regulations. By having your plan audited, you can address any compliance gaps and prepare yourself should the Department of Labor initiate an audit.
Our ERISA audit team has significant experience and knowledge. Our team stays current on the tri-annual continuing education guidelines set forth by the Employee Benefit Plan Audit Quality Center. We also regularly educate our team on any changes to plan regulations by ERISA and the Department of Labor. We have received favorable reviews from the regulators.
When we perform an audit on your behalf, we’ll start by meeting with the plan’s decision makers. That could include the plan administration committee; any human resources personnel that serve as plan liaisons and even key plan participants. We’ll review how participants are enrolled in the plan. We’ll look at decisions made about the plan and how those decisions were documented. We’ll also take a look at the summary plan description to see if it includes all the information that it should.
Here are some of the specific things that we look for:
Gaps in the Summary Plan Description
When ERISA plans were first created in the 1970s, the Summary Plan Description (SPD) was exactly what its name implies – a summary. Since that time, ERISA law has expanded significantly. Most of the new rules and regulations have to be reflected in the SPD.
The result is that the SPD is no longer just a summary, but more like a novel. We find that many companies are missing information in their SPD. It could be information about contribution vesting, investment options or how plan decisions are made. The company may have changed their participation rules and forgotten to change the SPD.
It’s critical that the SPD accurately reflect the plan’s rules for two reasons. First, the SPD is the primary document that participants have to understand how the plan works. You may think that your participants don’t read the SPD and that may very well be true. However, it’s purpose is to inform them of their benefits so it needs to be as accurate as possible.
The second reason an SPD should be up-to-date is because it is the first thing the Department of Labor will look at in an audit. It gives them clues as to where else to look for errors. If they sense that your SPD is out-of-date or inaccurate, they’ll know that there are probably other errors to find.
ERISA has set forth very strict rules about when and how contributions are to be handled. It’s for good reason. Those contributions are for the participants’ benefit and some are withheld from participants’ pay. Mishandling of the contributions could lead to inadvertent errors and significant penalties.
It’s crucial that you have a document that states exactly how contributions are deducted from employee paychecks and how and when those contributions go into the ERISA plan. Once that document is in place, you then have to follow that process without exception.
This is sometimes hard in smaller companies. You may have one person that’s handling ERISA contributions in addition to other responsibilities. The process may not be as defined as ERISA and the Department of Labor would like it to be.
In our ERISA audits, we review your contribution handling process and identify areas for improvement. We then help you craft a contribution process that meets ERISA guidelines.
It may be hard to keep track of who is and is not eligible to participate in your plan. This is especially true if you have part-time employees who have schedules that vary from week to week. It’s fairly common that a company will have employees who are eligible for the plan and not even realize it.
Unfortunately, this is a big problem. If the Department of Labor finds that employees are eligible, but were not notified of their eligibility, they could punish you with fines or other penalties.
In our ERISA audits, we analyze your eligibility guidelines and review your employees’ participation criteria. We’ll help you identify who should and should not be in the plan. We’ll also help you craft a process for keeping track of this information going forward.
The plan is prohibited to engage in certain types of transactions with individuals who are a “party” to the plan. This includes plan participants, the employer, any individuals providing services to the plan and the relatives of those individuals. Transactions that are explicitly prohibited by ERISA include:
- The sale, exchange or lease of property.
- Lines of credit or lending of funds.
- Transfers of plan assets.
In addition to the above, the plan’s fiduciary is not able to use the funds in the plan for their own benefit. If the government determines that prohibited transactions occurred, there are substantial financial penalties. The Department of Labor has the right to assess a penalty of up to five percent of the amount of the prohibited transaction in addition to other fees. Additionally, violations can cause the plan to lose its status as a tax-exempt entity.
Late Remittances into the Plan
Generally speaking, employee contributions must be made timely and no later than the 15th business day of the month following the contribution. For example, an employee contribution collected on September 1st would need to be remitted to the plan by the employer no later than the 15th business day of October.
Failing to remit funds in a timely manner is a violation of fiduciary responsibility and requires that offenders enter the Voluntary Fiduciary Correction Program (VFCP). In order to rectify issues surrounding late remittances, the plan sponsor may need to make deposits that include interest in order to make plan participants whole.
If your organization believes that violations of ERISA have occurred, it is important to speak with an ERISA professional who can help navigate through the process of correcting issues.
There’s great benefit to having ERISA audits performed annually. They’ll keep you prepared for a possible Department of Labor audit. Even if you are never audited by the Department of Labor, you can still rest assured that you’re providing your employees with a compliant and transparent benefits plan.
Contact us today to learn how our ERISA audits team can help you strengthen your plan. We’d be happy to consult with you and provide our recommendations.