What are the Typical Steps in a DOL Audit?
Many popular retirement and health care plans must comply with the Employee Retirement Income Security Act (ERISA). Employers that sponsor one could one day receive a request from the U.S. Department of Labor (DOL) for plan-related documents. Such a request usually initiates a DOL civil investigation, often referred to as an “audit.”
If this happens to your organization, address the inquiry immediately. Failure to provide requested documents to the DOL can lead to a penalty assessment, and a prompt and cordial response can establish a positive rapport with the investigator. DOL audits generally follow a predictable path:
Initial document request. Generally, a plan sponsor learns of an audit when it receives a letter or phone call from the DOL’s Employee Benefits Security Administration (EBSA) advising “plan officials” of the investigation and requesting a detailed list of documents. The investigation may be general in nature or target a specific issue.
On-site review and interviews. The investigator may arrange to visit the plan sponsor’s offices and could request additional documents for review during the visit, such as payroll and claims processing records. Often, the investigator will gather relevant information by interviewing one or more individuals responsible for the plan. (Note: During the COVID-19 pandemic, some investigations have been conducted virtually.)
Investigation findings. If the investigator finds no ERISA violations, EBSA will send a closing letter stating that the investigation is complete, and no further action is contemplated. If the investigator does find violations, EBSA will issue a voluntary compliance notice letter identifying the violations and inviting plan officials to voluntarily make corrections.
Correction and settlement. Whenever possible, EBSA seeks voluntary compliance through full correction of identified violations and restoration of plan losses. After negotiating a corrective action with plan officials, the agency will issue a detailed settlement agreement.
A typical agreement requires evidence of the correction and provides that, if EBSA determines that the agreement’s terms have been fulfilled, no further enforcement action will be taken regarding the specified violations. When voluntary compliance isn’t achieved, EBSA may refer a case to DOL attorneys for litigation. Some situations are inappropriate for voluntary correction, such as those involving fraud, criminal misconduct, or severe or repeated fiduciary violations.
Fiduciary violations. ERISA imposes a mandatory 20% penalty on any amounts recovered from a fiduciary or other person for a fiduciary breach, including amounts recovered under a settlement agreement. Generally, EBSA assesses the penalty in a separate letter, though the penalty may be addressed in the settlement agreement.
Closing letter following correction. After EBSA confirms that corrective action has been completed and any penalties have been paid, it will send a closing letter indicating that compliance was achieved.
These steps could be completed in a matter of weeks or take a year or more, depending on the:
- Complexity of the plan design,
- Issues identified in the investigation,
- Availability of documents and individuals for interviews,
- Degree of cooperation between plan officials and EBSA, and
- Number of potential violations.
In the event of a DOL audit, our firm can provide support throughout the process.
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