Tips to Avoid the Surprise DOL/IRS Company Audit
In recent years the Department Of Labor’s Employee Benefits Security Administration, EBSA, has increased efforts to promote plan sponsor retirement compliance. As evidenced by the EBSA’s 2016 audit report, 2,002 civil investigations – with over ⅔ of those cases ending in monetary penalties and additional contributions – resulted in $777.5 million recovered for plan participants. What this means for companies is a significant increase in 401(k) retirement plan scrutiny and audits.
But there are some techniques to help avoid a costly IRS or DOL audit.
The time and monetary demands of these audits are costly, especially to small businesses. However, there are some tips to help avoid a surprise audit.
Respond to participant inquiries and complaints immediately.
The most common trigger for a DOL audit is a complaint filed directly to the IRS or DOL from a current or former employee. Keep copies of correspondence, as often times former employees seek out the DOL to “get back” at their employer. The key here is to establish and maintain a robust communication system that takes participant problems seriously and remedies them swiftly.
Ensure the filing is made on time and accurately by a competent provider.
The second most common trigger is an error in the company’s Form 5500 filing. Do not file yourself. Most companies have their accountant or record keeper file, but a third party provider may be hired too.
Do not be late with contribution submissions.
The DOL is heavily interested in ensuring the participant 401(K) contributions are submitted properly to the trustee, as many employers do not view participant contributions as participant money – which they are. So, ensuring that the deposits happen promptly (usually within 7 business days) is an easy way to keep the DOL at bay.
Read more retirement tips for small businesses here.