How Employer should Prepare for 401(k) Audit

The Employee Benefits Security Administration, EBSA protects the security of the retirement, health and other workplace related benefits of American workers and their families. The agency accomplishes these goals by developing effective regulations assisting and educating workers, plan sponsors, fiduciaries and service providers and vigorously enforcing the law.
The agency conducts two types of investigation/ audit
• Plan
• Service Provider
• Plan
• Service Provider
• Employer
• Individual
In most cases the sources of this investigation comes from the following:
• Participant complaints
• Form 5500 Reviews
• Referral from other agencies
• Media
• Other

Areas of reviews in civil cases include
• Review of Plan Asset
• Prudence, Prohibited Transactions, Self dealing
• Reporting and Disclosure
• Bonding
• General Plan Operations
• In accordance with Plan Document
• Remittance of Employees Contribution

The investigation starts with a phone call the Auditor followed by a confirmation letter that states the data and time for visit, plans to review and document needed.

The basic document for review includes the following:
• Plan Document/ Trust Agreement
• Form 5500 filings (past 3 years)
• Summary of plan description, SPD
• Summary of Annual Reports, SAR for last year
• Fidelity Bond
• Fiduciary Insurance Policy
• Trustee Statements (past 3 years) (asset records)
• Service Provider Contracts
• Meeting Minutes
• Benefit Statements
• Asset records
• Payroll/contribution records

Areas of emphases during investigation include:
Reporting Requirements-
• Annual report Form 5500
New health care provisions-
• Affordable care Act,
• Genetic Information Nondiscrimination Act, GINA, and
• Mental Health Parity and Addiction Equity Act
Disclosure Requirements-
• Summary Plan Descriptions (SPDs),
• Summary of Material Modifications (SMM),
• Summary Annual Reports (SARs),
• "Blackout" Notices, COBRA Notices / HIPAA Certificates etc,
• Provide documents on request,
• Participant Benefit Statements,
• Field Assistance Bulletin 2006-03,
• Field Assistance Bulletin 2007-03
• 10% of Funds Handled -not less than $1,000 or more than $500,000 ($1,000,000 for plans with employer securities),
• No deductible,
• Plan should be named as insured,
• Discovery Period of no less than one year after termination or cancellation of bond is required,
• See FAB 2008-04.
Employees Contributions Requirement
• The basic rule in handling employees' contribution- as soon as they can be reasonable segregated from employers' general asset. Questions will be asked about handling of the contribution, plus a review of practice and experience.
• Safe Harbor Requirement -1/14/2010 -for plans with fewer than 100 participants
• Outside Limits (Not a safe harbor)
• Pension -15 Business Days after end of month of withholding / receipt
• SIMPLE IRA Plans -30 days after end of month
• Welfare -90 days after withholding / receipt

The agency investigation is concluded with a closing letter if no problem is identified. If problem are noted necessary correction must be taken to address the issue.
Usually, EBSA will send "Notice Letter" that identifies problems and offers chance to discuss correction. EBSA encourages voluntary compliance

However, if the employers failed to take the necessary corrective action identified, the case will be referred to the solicitor's office. There are two types of referrals:
IRS referral is initiated if the problem has to do with
• prohibited transactions that is, IRC §4975 excise tax- tax qualified pension plans and
• Potential issues affecting tax qualified status.
Criminal referral has to do with the following findings:
• Theft / embezzlement
• Kickbacks / bribes
• False statements to investigators
• Willful failures to file / false filings
• Health care fraud