Department of Labor Audit

By: Robert Pusateri, Capstone Brokerage Benefits Consultant, April 22, 2015

Every year thousands of ERISA-governed plans (group medical, dental, vision, STD, 401k,etc.) are selected for audit by governmental agencies. The Department of Labor (DOL) has authority to audit an employee benefit plan’s compliance with the Employee Retirement Income Security Act (ERISA). Audits are performed by the DOL’s Employee Benefits Security Administration (EBSA) and are completely random. In Able to perfom these drawn out audits, EBSA employs over 400 investigators working out of field offices, many of whom are lawyers or CPAs or have advanced degrees in business and finance. Preparation of plan documents is very important in case you receive an Audit letter. The best time for an employer to analyze whether it is ready for a DOL audit is before the DOL comes a knocking.

When the DOL selects an employer’s plan for audit, the DOL will send out an investigatory letter. This letter serves to notify the employer that a DOL investigation will take place. Investigations can be in the form of a “limited review” or a full-scale investigation. Regardless of the scope, the next steps are crucial to reducing an employer’s liability and making the investigation as easy as possible.

DOL audits often focus on violations of ERISA’s fiduciary obligations (making sure the employer does the right thing with the money), basic reporting and disclosure requirements to subscribers on the plan. The DOL may also investigate whether an employee benefit plan complies with ERISA’s protections for plan participants, such as the special enrollment rules outside of the standard.

Traditionally, DOL audits of employee benefit plans have focused primarily on self-insured plans and retirement plans, such as 401(k) plans. However, now that the DOL has started enforcing compliance with the ACA, health plan audits are on the rise.

A DOL audit can be triggered for a variety of reasons. In most cases, the DOL investigator will not disclose to an employer why its health plan was selected for audit. However, there are some common audit triggers that an employer should keep in mind.

Common triggers for a DOL audit include:

• Employee complaints to the DOL about potential ERISA violations. In 2013, according to a DOL audit summary, 775 new investigations were opened as a result of participant complaints.
• Answers on the plan’s Form 5500 (for groups with over 100 participants). Ex: a plan’s Form 5500 is incomplete, or if inconsistent information is reported from year to year, the DOL may investigate the issue further.
• Having a Self-insured plan.

Remember just because you have been selected for an audit does not mean that you have violated an employee benefits law. Even an employer in compliance can encounter an unexpected audit. A DOL audit is not a simple process and being “ahead of the game” can potentially save an employer a large amount of money, time and stress.

Generally, the initial letter from the DOL will include a request for a list of plan-related documents (Medical plan SPD, vision plan benefit summary, etc.). Employers that receive audit letters are always surprised by the number of documents requested by the DOL auditor.
Although employers generally have no way of knowing whether they will be selected for an audit, it is important for them to maintain employee benefit documents in an organized fashion so they can respond to a DOL audit request in the event this occurs.
Typically, the audit letter will request that the documents be provided by a specified date. It is critical to respond by this deadline. Inadequate or late responses could trigger additional document requests, interviews, on-site visits and even DOL enforcement actions.

Once an employer knows that it’s being audited by the DOL, there are a number of things it can do to prepare for the investigation:

• Secure ERISA legal counsel for assistance with the audit process immediately

• ERISA counsel can negotiate or clarify the scope of the document request and, if necessary, ask for an extension to the response deadline

• Establish a contact person at the company for the investigation

• In-house or Broker should avoid taking the lead role

Also, keep in mind that, during an audit, the DOL may request fewer documents depending on the scope of the audit. An audit is totally random.
The next blog will discuss in more detail which plan documents should be prepared for an audit either electronically or paper version.