Fiduciary Responsibility 2018-03-27T10:31:04+00:00

Fiduciary     Responsibility.

Is your 401(k) Plan DOL or IRS Audit-Ready?   20 Things IRS and DOL Will Likely Look for in 401(k) Plan Audit

auditThere are many reasons your 401(k) plan may be audited.  It may be that something on your Form 5500 doesn't match up properly – confirm that the compensation from your service providers is current and accurate.  You may be audited because employees/participants issue complaints – do you have any disgruntled participants out there doing a slow-burn?  It may be worth addressing and getting the issue resolved?  Another reason may be because you have an ESOP – are participants in the ESOP being properly credited each year?  Other agencies like IRS or SEC may also refer a DOL audit.

If your 401(k) plan does get a DOL audit, you are seeking a NO ACTION outcome in the closing letter.  There may be a few things that they found, but DOL does not intend to formally address them if they are considered minor and you are able to correct them right away.  If DOL does find some infractions that merit a formal response, you may be able to participate in the Voluntary Compliance Program.  This sounds like a nice, friendly program, but the fees and actions can be startling.  Even if the fees in the Voluntary Compliance Program may seem high, they may pale by comparison to the fees and fines from formal action.

So How Can You Prepare?401k

DOL and IRS 401(k)-plan audits can be stressful because you are trying hard to do the things right that “you know,” but what about the things “you don't know that you don't know?

Simple things like your client service agreements – between TPA, plan advisor, and record keeper – are they signed and dated?  How about your Form 5500? It may be prepared by someone else, but have you closely reviewed it to if see the data is correct?


Is your advisor compensation 'level?' 

auditingIf you use a 'broker,' compensation may vary based upon the different fees in the various share classes of your investment plan lineup that may create a conflict of interest, even if the broker appears to get paid a level rate.   [The new DOL Fiduciary Rule that is currently expected to become effective June 9, 2017, addresses level compensation for your plan advisors.]  Using a representative of a Registered Investment Advisor can provide level compensation.

Compliance audits are conducted by people.  A spirit to intend to be compliant may go a long way should you be audited.  Putting together all your fiduciary compliance documents in an organized and up to date record keeping system, for example, may demonstrate an awareness of various regulations and document how you comply with these rules. 

A spirit of cooperation and your intention to comply may be recognized during the audit, which may lead to a No Action letter.   Of course, there is more to it than appearing to want to comply.  You really need to have your ducks in row.

Share Class Cost – Which Do You Use?

Did you know that one fund may have several share classes? Yes, there may be as many as eight or more share classes for one fund, each with a different ticker and each with a different cost to your plan participants. The reason for this difference is that people are being paid from this amount – the record keeper or the advisor or the TPA. If your record-keeper is already charging a wrap fee, the extra expense could be going to the record-keeper as well. If different share classes are offered, the fiduciary responsibility should be assessing this and assessing which share class you should be using.

The following may be a list of compliance areas for which you want to take a closer look:

  • Compensation
  • Plan Document Updating
  • Plan Eligibility
  • Plan Loans
  • In-Service Distributions
  • Distribution Paperwork
  • ADP/ACP Non-discrimination Testing
  • Vesting
  • Required Minimum Distributions (RMDs)
  • Top Heavy Testing
  • Qualified Domestic Relations Order (QDRO) Procedures
  • Target Date Funds
  • Revenue Sharing and 12(b)(1) Fees
  • Consultants and Investment Managers
  • Late Payroll Deposits
  • ERISA Fidelity Bonds
  • Blackout Notices
  • Investment Policy Statement & Investment Lineup
  • Plan Committee Meeting Minutes
  • Utilizing the lowest Share Class available

plan analysis

Check Out Our Fiduciary Fitness Program

How did you do? Want to download a list of areas you would want to assemble in a Fiduciary Compliance Manual?  DOWNLOAD the checklist by completing the form below.

*Investing in mutual funds involves risk, including possible loss of principal.  This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

If you would like Waterfront Financial Group to conduct a preparatory Plan Review, please click here to request a proposal.