The IRS and DOL Focus on Administration and Fiduciary Investigations

The IRS and U.S. Department of Labor (“DOL”) have shifted their focus from document and reporting compliance to the review of qualified retirement plan compliance in terms of administration and fiduciary responsibilities. Enhanced examination programs and an expanded staff are now in place to review the activities and operations of qualified retirement plans and their fiduciaries.

Of IRS Interest

The IRS is primarily responsible for the tax qualification of plans, including eligibility, vesting, discrimination and distributions among other issues. Particular areas of enforcement and concern include:

  • Plan documentation, including required amendments
  • Plan operations and administration based on plan document terms
  • Employee eligibility and participation
  • Correct use of the plan definition of compensation
  • Plan contributions made to appropriate employees
  • Plan satisfaction of statutory limits and nondiscrimination tests
  • Timely deposit of employee deferrals
  • Participant distributions meeting the plan document and statutory requirements
  • Completion of annual filings

Under DOL Scrutiny

The DOL is primarily responsible for the fiduciary operation of plans including reporting, disclosure, asset management and prohibited transactions among other issues. The Employee Benefits Security Administration, which is under the DOL, is responsible for the administration and enforcement of ERISA requirements. The goal is to protect the pension, health and other benefits of participants in private sector employee benefit plans.

Both civil and criminal investigations are conducted by the Employee Benefits Security Administration. Matters that warrant investigation include:

Civil Violations:

  • Failure to operate the plan prudently and for the exclusive benefit of participants
  • Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals
  • Failure to properly value plan assets at their current fair market value or to hold plan assets in trust
  • Failure to follow the terms of the plan (unless inconsistent with ERISA)
  • Failure to properly select and monitor service providers
  • Taking any adverse action against an individual for exercising his or her rights under the plan

Criminal Violations:

Violations involving employee benefit plans under the U.S. Criminal Code, including:

  • Theft or embezzlement from plans
  • False statements or concealment of facts in relation to required documents
  • Offer, acceptance, or solicitation to influence operations of plans

Preparation Is The Best Practice

There are significant penalties that can be assessed against the plan sponsor and fiduciaries for failure to comply with the requirements of ERISA. Therefore, it is important to be familiar with the areas of enforcement and concern for each agency. In addition, an understanding of the penalties for failing to properly operate a plan as well as the programs available to correct plan errors is key.

The best preparation for IRS or DOL investigations is periodic compliance assessments with the assistance of knowledgeable advisors and the completion of various agency correction programs as needed. Importantly, if either the IRS or DOL contacts a plan sponsor to begin the review process, the plan sponsor should engage experienced retirement professionals to review the agency notices and assist with the process. An investigation can entail document and administration review as well as agency correspondence and interviews. To learn more about how ABG can help, contact your local ABG representative.