The Department of Labor (DOL) has been dramatically increasing its number of auditors the last two years, hiring 1,000 new auditors. If your company has a retirement plan like a 401(k) or 403(b), the odds of it being audited are rising significantly.
One highly respected presenter at a conference for retirement plan professionals that I attended this week made a bet open to all takers that every plan they have will be audited in the next 3 years. While that may be a stretch, many plans will get their first DOL phone call announcing a surprise audit. That is big news to many CEOs, CFOs and HR heads whose plans have never been audited.
Much of this effort is funded by fines levied against audited plans. Last year those fines amounted to $1.7 billion, up 30% from the year before. According to the DOL, 70% of plan audits result in fines and/or orders for fiduciaries to personally reimburse the plan. If you are the CEO or CFO, that likely includes you. It is rarely covered by the bond you bought for the plan, which is just for theft. I’m talking about plans costs that are too high, especially for the advisor, fund expenses that are too high and numerous other issues.
Decision-makers whose plan assets are under $25 million have no idea of what they need to be doing to be in compliance with the DOL requirements. Worse, they don’t know that they don’t know. They figure the HR Department, the 3rd party administrator (TPA), the plan record keeper or the plan advisor are taking care of it, especially if the plan is with a large company – wrong!
Here’s why. Since 85% of investment advisors to plans have less than 5 plans (the vast majority have only 1-2) most advisors have no idea of what the DOL requires. Most advisors on plans under $50 million are highly overpaid for what they actually do for the plan, and if so and you are a decision-maker on the plan, that is a breach of your fiduciary obligations. You will likely have to reimburse the plan for each year that was the case. As for TPAs, they will file required forms but few concern themselves with fiduciary requirements. Even a CPA audit does not normally address fiduciary issues well, if at all.
At a bare minimum, if you don’t have a decent investment policy statement, don’t have specific, written criteria for choosing outside providers and regularly monitoring them, fail to do regular reviews of all plan costs with benchmarking, don’t catch some income eligible for contributions and matches or you are missing documentation of how you have chosen, reviewed and replaced plan investment options, you are a sitting duck for an auditor or attorney.
It’s a shame, because the Department of Labor has a booklet entitled, Meeting Your Fiduciary Responsibilities. Call or email me for a highlighted copy or to start a conversation. By the way, I always include myself (in writing) as a fiduciary on the plan if I am the advisor. I also do plan consulting.
David Hoshour, MBA AIF