Navigating DOL 401(k) Audit Red Flags

Think there’s no way your retirement plan might be audited? Think again. The Department of Labor (DOL) can select any size retirement plan for a random 401(k) audit. Your plan also could face an audit if it matches an Internal Revenue Service (IRS) dataset targeting certain types of plans or if the plan raises a “red flag.”

What are the red flags? Here are a few things you can do to avoid or lessen your chances of being audited and increase your chances of surviving an audit. Most DOL 401(k) audits are triggered by complaints from current and former employees.

One way to head off formal complaints is to respond to employees’ inquiries in a timely fashion. Keep copies of all correspondence. If an employee makes a formal claim of benefits, follow the Employee Retirement Income Security Act (ERISA) regulations.

Check with your ERISA attorney any time you issue a claim denial to ensure it is consistent with the written plan terms. Also, make sure that you clearly explain the participant’s appeal rights and the reason for the denial.

It’s not unusual for employees to become frustrated because they don’t understand the benefit plan. Regular training sessions can reduce these misunderstandings.
Experts recommend you pay a reliable third-party administrator, such as an accountant, to file your plan’s Form 5500 to make sure the compliance questions are answered correctly.

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