Top 10 Mistakes 401k Plan Sponsors Make – Mistake #5 – Missing Documents. When the IRS or DOL come calling for an audit, they generally start with a request for documents. And if a 401k or 403b plan sponsor is unable to produce those documents in a timely fashion, it could lead to a widening of the investigation.
Hear from ERISA attorney Jewell Lim Esposito from Fisher Broyles about which documents the IRS and DOL generally request and how long plan sponsors have to keep those documents in our series about the Top 10 Mistakes Plan Sponsors Make.
Full Transcript Below:
Fred Barstein: Greetings. This is Fred Barstein with 401KTV and our series of the 10 biggest mistakes that plan sponsors, 403B and 401K plan sponsors, can make according to advisors. I’m here with Jewell Lim Esposito. Welcome, Jewell.
Jewell Esposito: Thank you, Fred.
Fred Barstein: Jewell is a very well known ERISA attorney, a partner with the firm of FisherBroyles here in the metro DC area. You have clients all over the country that deal with not for profit, private and government entities. And Jewell is also a renowned speaker and expert legal strategist under ERISA. Welcome. Okay if we ask you a few questions today?
Jewell Esposito: Sure is.
Fred Barstein: That fifth biggest mistake is when a plan sponsor is under an IRS audit or a DOL examination that they don’t timely remit all of the requested documents. What are the types of documents and things that the IRS or the DOL are going to be typically asking for?
Jewell Esposito: At times, they will ask for the minutes of board meetings.
Fred Barstein: Meaning committee meetings?
Jewell Esposito: Committee meetings that determine who the vendors are, what they assess in terms of plan expenses.
Fred Barstein: The minutes, yeah.
Jewell Esposito: The minutes. Also asked by the IRS is where the documents that support why something was a hardship distribution, for example. Or why was a loan made? Did it fit within the rules? And the tough thing about producing documents is that a lot of times employees are able to get their hardship distribution or loan online, and so there are no paper documents to support that.
Fred Barstein: Does the record keeper have that documentation?
Jewell Esposito: I think that they could, but it’s just in the end, the plan sponsor’s responsibility to keep those records available should the IRS or the Department of Labor come inquiring about those documents.
Fred Barstein: If you were an IRS auditor or a DOL examiner, and somebody wasn’t able to give you those documents in a timely fashion, what are you thinking?
Jewell Esposito: I think from the government’s viewpoint, it would be if they’re this sloppy or unable to produce documents, then what does it say about its overall practices with respect to the plan operation?
Fred Barstein: So it might be they go a little bit further.
Jewell Esposito: I think so. They could expand scope.
Fred Barstein: Right. Then what should a plan sponsor do to prepare for this?
Jewell Esposito: Well, first of all, plan sponsors seem to think that they can get rid of documents whenever they’d like. And the rules require that they keep those documents around for so long as it will be needed to determine what benefit an employee will get under that plan. So that could be a very, very, very long time to determine what the plan benefits are, less loans, less distributions.
Fred Barstein: Right. Is electronic, having those electronically, or do they have to have them physically?
Jewell Esposito: It’s okay to store them electronically. But certainly, when the IRS and Department of Labor ask for documents, they typically ask for paper documents. And if it is provided electronically, then the IRS wants to know how to access those documents on those electronic files.
Fred Barstein: Great. Thanks, Jewell.
Jewell Esposito: You’re most welcome.
Fred Barstein: And thanks for watching our series on the 10 biggest mistakes that plan sponsors can make according to advisors. Stay tuned.