At a recent TPSU (The Plan Sponsor University) program held at the University of Alabama Huntsville, the question arose of what triggers a DOL audit. The answer may lie in a recent announcement by the DOL that failure to timely commence payment of vested benefits will be targeted. Though the question is still how expansive this DOL initiative will be, employers sponsoring a defined contribution plan like a 401(k) should pay close attention to their processes and whether they are being followed.
According to the law firm of Smith Gabrell & Russell, The DOL investigation has found that:
- some retirement plan sponsors do not have procedures in place to ensure the timely payment of retirement benefits to participants and
- other investigated plans have procedures, but the plan sponsors and plan administrators have not been following them.
Failure to put procedures in place – and, more importantly, the failure to follow them – may be seen as a breach of fiduciary duty in the eyes of the DOL. According to the DOL, fiduciaries who fail to maintain, and follow, procedures for ensuring payment of retirement benefits to participants (including lost participants) may have personal liability for any tax consequences to those participants. (Emphasis added)
At the University of Alabama Huntsville TPSU, one plan with close to 200 participants and $10 million relayed a horror story about not following procedures. One of the company’s employees decided to go to part time which the HR director thought would preclude the worker from participating in the 401(k) plan. Their TPA informed them that the plan documents allowed part time workers to participate which meant the plan sponsor had been improperly excluding many employees. They subsequently filed a voluntary correction with the DOL after hiring an ERISA law firm but face significantly penalties.
Smith Gabrell recommends that plan sponsors:
- perform an internal review of their own plans;
- make sure that they have procedures in place to ensure the timely payment of benefits to retirement-eligible participants and to locate missing participants with vested benefits; and
- ensure that they and their TPA are following those procedures.
