The Employee Benefits Security Administration (EBSA) oversees compliance for almost 681,000 retirement plans. Together with health and welfare plans, EBSA’s jurisdiction reaches 143 million individuals, including employees and their beneficiaries. While the assets covered of over $8.7 trillion as of October 2015 may appear to be a significant sum, are they really enough for participants and their families to sustain a comfortable livelihood for the duration of their retired lives without requiring the need of future governmental assistance? More importantly, are they enough to avoid the risk of having to return to the workforce after already reaching the normal retirement age? In an effort to stress the severity of the errors noted in audits of retirement plans, specifically the importance of fiduciary oversight, the DOL has announced its intent to investigate even more plans than in the past.
DOL audits can be grueling, time consuming, and they begin with the receipt of a simple letter which states, “The Secretary (of Labor) shall have the power, in order to determine whether any person has violated or is about to violate any provision of this title or any regulation or order thereunder … to make an investigation, and in connection therewith to require the submission of reports, books, and records, and the filing of data in support of any information required to be filed with the Secretary under this title …” Within ten business days, the Plan Sponsor will be required to submit the following documents in their entirety:
1. Current plan document and all amendments
2. Current trust agreement and all amendments
3. Most recent summary plan description
4. Most recent summary annual report
5. The latest fidelity bond policy and riders/endorsements for the plan covering fraud and dishonesty that includes the following information:
a. Bond lapse date
b. Amount of the bond
c. Named insured(s)
d. Discovery period
e. Name of the surety company
6. Fiduciary liability insurance policy, if applicable
7. Most recent internal income statement which indicates receipts and disbursements of funds in connection with the plan
8. Most recent internal balance sheet/statement of assets and liabilities for the plan
9. Schedule of plan assets from 2008 to present
10. Most recent Internal Revenue Service Letter of Determination
11. Minutes of the plan’s Board of Trustee’s meetings from the three most recent plan years as well as minutes of Trustee Committees, subcommittees, plan administrative groups and plan committee meetings
12. Financial records for the last three years:
a. Trust reports – both schedule of assets and schedule of transactions; and
b. If the plan funds are held in a checking account, savings account, or other general ledger account, copies of transaction statements
13. Service provider contracts including insurance contract agreements, investment manager agreements, third party administrator contracts, and any contracts with actuaries, attorneys, and accountants
14. A sample quarterly participant benefit statement that may be redacted of all personally identifiably information
15. For all loans made, held, acquired by, or involving the Plan, including participant loans and any loans secured by mortgages
a. A list of any and all loans made to any person, firm or corporation
b. A list of all participant loans that exceed five (5) years
For any loan used in acquiring a principal residence, attach supporting documentation (i.e., construction loan contracts, HUD documents, purchase/sell agreement)
c. A list of any and/or all loans that were in default within the preceding four (4) years
d. Identification of collateral (UCC-1 filings, trust deeds, mortgages, etc.)
e. Internal procedures followed in obtaining loan from the Plan
f. A set of sample loan documents
16. Annual Report Forms 5500, with the audited financial statements and any schedules or attachments for the last three years filed
17. All documents regarding fees incurred by the Plan for services rendered to the Plan, including but not limited to internal fees and commissions, and performance-based fees and/or commissions
18. All documents regarding costs, either direct or indirect, charged to the Plan by the sponsor, its affiliates or subsidiaries and/or any entity in which the sponsor has an ownership interest
19. All documents related to the Company’s organizational structure and management structure, including but not limited to articles of incorporation, corporate by-laws, partnership agreements and organizational charts
20. Any and all documents which describe the Plan’s compliance with ERISA requirements, including but not limited to ERISA compliance policies and procedures, names of employees responsible for ERISA compliance, any ERISA compliance audit, reviews or examinations, and any documents which describe any ERISA compliance violation and correction of the violation
21. All documents that disclose any arrangement wherein the Plan, Plan fiduciary, Plan Sponsor, its agents or employees, or any affiliated entity receives monies or other property, directly or indirectly, as a result of making a recommendation or selection of any investment for the Plan
22. All documents regarding the investment performance of the Plan, including but not limited to analysis regarding the dismissal or retention of portfolio investments
If you, the Plan Sponsor and fiduciary, received this letter today, would you be able to provide the required documentation within the allotted ten-day period? If you cannot, it could mean a visit by the DOL whose audits have netted average recoupments and penalties of $240,000 per audit.
You may not believe that the DOL will come after your Plan and you may very well be correct, but it is always better to be prepared. You may never get into a car accident, but it is a good idea to have working air bags just in case.
If you would like to learn more about this topic, please contact:
Kenneth R. Cerini, CPA, CFP, FABFA
Managing Partner
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.