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What to Expect if the DOL Audits Your Employee Benefit Plan

July 13, 1999
Nearly 5,000 employee benefit plans are audited each year by the Department of Labor (DOL). As an employer, what should you expect? And, what steps can you take now to avoid an audit? Sherwin S. Kaplan, Deputy Associate Solicitor of the Plan Benefits Security Division for the Department of Labor (DOL), offers several pointers.

Commencement of audit.
An audit begins with the DOL sending a letter to the employer asking the employer to produce certain documents. The DOL will not tell the employer what information it is seeking and, at this stage, the employer has no obligation to cooperate. However, if the employer does not cooperate, the DOL will send a subpoena to the employer requesting the production of documents. If the employer again chooses not to cooperate (and, at this point, the employer is still under no obligation to comply), the DOL will file suit in court seeking judicial enforcement. At that point, the employer must comply, if so ordered by court. The disadvantage of waiting for the court’s order is that the issue is now a matter of public record and benefit plan participants may learn of the DOL’s investigation.

Investigation phase.
After the employer produces documents, the DOL begins its investigation phase. During this phase, the DOL may take sworn statements from relevant witnesses, either through interviews or more formal depositions. After the close of the investigation, it may be some time before the employer hears back from the DOL, since the DOL agent needs to write up a report. When the employer does hear back from the DOL, most likely it will be in the form of a voluntary compliance letter that outlines the DOL’s position, invites comments and explains what the employer needs to do to correct any problems. On occasion, however, the DOL may simply file suit, especially if the employer’s conduct has been egregious. However, Kaplan points out that, out of the 5,000 or so employee benefit plans audited each year, almost all but 100 to 150 of the investigations are settled out of court.

To avoid an audit.
To avoid a DOL audit, Sherwin offered these pointers:

  • First, do not engage in prohibited transactions.
  • Second, use prudence in administering your plan, whether in selecting a service provider or collecting employee contributions.
  • Third, document every process.
  • Lastly, continuously monitor the plan’s administration. For example, Kaplan notes, the investment choices selected one year ago for your 401(k) plan participants "may no longer look so great."

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The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.