DOL Audit – What to Expect, How to Prepare

DOL Audit ABG HoustonEvery year the Department of Labor (DOL) conducts thousands of audits of employee benefit retirement plans. While many of these audits are based on random selection, a number of them may be triggered by retirement plan oversights such as a late filing of Form 5500 or participant complaints. The DOL typically initiates its audit process through an Information Request Letter. Although receipt of this letter may cause consternation, there is much that can be done to prepare. The following is an overview of some of the issues the DOL may focus on in terms of fees and fiduciary responsibilities. We will also review steps plan sponsors can take to prepare in the event of a DOL audit and why increasingly plan sponsors are looking for assistance in carrying out their fiduciary responsibilities.

The DOL’s Retirement Plan Focus


The DOL seeks to identify and address violations of the Employee Retirement Income Security Act (ERISA) and is increasingly focused on the internal controls employers maintain for their employee benefit plans. Fees, consultants, target date funds, and investment policies are four issues that are closely scrutinized.

  • Is there a process in place to evaluate the appropriateness, cost, and effectiveness of the plan’s chosen investments?
  • Have the plan fiduciaries determined that the investment management fees are reasonable?
  • Have the annual and quarterly fee disclosures been made to plan participants


Another hot-button issue for the DOL is how plan fiduciaries select and monitor consultants and whether the consultant has a conflict of interest:

  • Does the consultant get a bonus based on business placed with a particular investment manager?
  • Is the consultant a fiduciary?
  • Are the consultant fees reasonable?

Target Date Funds

Target date funds have been on the DOL’s radar due to some confusion by plan participants and plan sponsors about how conservative the investments in a targetdate fund may become when the target date is reached.

A target date fund changes its investment allocation over time as the target date approaches. The investment mix may become more conservative and fixed income oriented as the retirement date nears. This asset allocation adjustment is referred to as the fund’s ”glide path.” A target date fund’s glide path can be either “to retirement” or “through retirement” which determines the allocation of the fund. For example, “through retirement” glide paths are more growth oriented as the fund seeks to generate growth through retirement.

When it comes to target date funds, from the DOL’s perspective fiduciaries must:

  • Understand the differences
  • Document how they selected their particular target date fund for the retirement plan
  • Understand how the fund they selected operates, including its glide path and its changing allocation over time.

Investment Policies

The DOL will also review a plan’s investment policy to ensure that the plan adheres to the guidelines it has adopted. A key focus includes:

  • Are the plan fiduciaries ensuring that the plan complies with their plan’s investment policy?
  • Are the plan assets properly diversified?
  • Have they updated the guidelines as needed if changes are made?
  • Has the investment policy been reviewed regularly with plan investment committee members and is this documented in meeting minutes?

The DOL asks for copies of plan committee minutes and it is important for those minutes to be complete and not raise any red flags. For example if the committee reviewed a fund currently in the retirement plan and noted that it had underperformed its benchmark for a number of periods, it also needs to document in the meeting minutes the steps it intends to take. Whether those steps are ongoing monitoring, discussing performance with the investment manager or seeking to replace the fund, they need to be recorded in the meeting minutes.

Receiving a DOL Audit Letter

If you do get an Information Request Letter from the DOL, the letter will typically list specific information that is to be made available during the audit. Engaging an ERISA professional to assist you with this audit, review plan provisions, and procedures, and prepare for any questions prior to the audit is advisable. Having all your plan documents organized including well-documented processes and procedures is key.

After the DOL Audit

Ideally after a DOL audit a “no action” letter is issued that states that the plan has passed the DOL’s testing, and no further action is required. However, the more common letter these days is a Voluntary Compliance Letter which may detail certain infractions that require corrective action under the Voluntary Fiduciary Compliance Program. Due to the complexity of plan administration, this is not uncommon.

Fiduciary Assistance

There has been a great deal of discussion over the past several years surrounding the fiduciary responsibilities of retirement plan sponsors. A number of recent lawsuits have focused on a breach of fiduciary responsibility by plan sponsors. The plaintiffs in these suits have claimed that fiduciaries were not monitoring plan expenses and, therefore, excessive plan fees were being paid by plan participants. As plan sponsors gain a deeper understanding of their fiduciary duties and what is at stake, they are increasingly looking for expert support. This includes support from providers like ABG who can provide 3(38) Fiduciary services to help plan sponsors make informed investment decisions and better manage and mitigate their fiduciary risk.

To learn more about how ABG can help, contact your local ABG representative.