Types of Retirement Plan Investigations
Most reputable employers want to ensure their retirement plans are up to compliance standards. This might seem like a daunting task, but it’s attainable with the right knowledge and legal counsel. First, let’s take a look at the fundamentals of retirement plan investigations.
Which Department Investigates?
Two main departments investigate these plans: Employee Benefits Security Administration (EBSA) via the Department of Labor, and the Internal Revenue Service (IRS) backed by the Department of Treasury. Each organization has their own focus with ESBA focusing on ERISA compliance and employee protection. The IRS enforces tax and compliance rules as many retirement plans offer tax advantages. A retirement plan must maintain certain statuses to keep tax-advantaged plans.
The Pension Benefit Guaranty Corporation or PBGC investigates defined benefit plans, like old-school pensions. They ensure those plan participants are protected and help employers take the right actions if they want to freeze or cancel a pension plan. This organization helps employers fill the right forms, including the form 500, annuity distribution information and a NOIT, or notice of intent to terminate.
What is Investigated?
Many important business pieces are investigated which include but aren’t limited to plan documents, 5500 filings, trust reports, statements, and information about the plan’s fiduciaries. This is done to ensure that fiduciaries are acting in the best interest of the plan’s participants.
Also, form 5500 is used as a disclosure document for plan participants and beneficiaries, which must be updated annually if the plan is subject to ERISA. This form was created so companies could stay compliant with annual ERISA Title I and IV regulations.
In addition to this, the Department of Labor will request detailed information regarding employee payroll and deposits. The DOL wants to ensure that no contributions were over or under stated. Since many plans have specific contribution amounts, following these laws are important to prevent you and your employees from unnecessary taxes like a 6% excise tax for going above 401(k) contribution limits.
The DOL also investigates fiduciaries, similar to a justice department involved with unlawful conduct. Many rules for fiduciary conduct have changed regarding retirement plans. For example, fiduciaries must use specific language and can offer only education, not advice.
Fiduciaries must allow each plan participant to come to their own decisions and not tell them what to do directly. This was done to prevent the past wrongdoings by financial professionals. Many unscrupulous financial professionals would sell plan participants expensive, unsuitable investments that only benefitted them.
What to Expect During the Investigation?
Luckily, most companies who are organized with their paperwork and taxes and who also have less than 100 employees won’t be audited. Typically, larger employers with high growth would have a higher chance of an audit. In the case of an investigation, here’s generally what happens:
Longer processes take 6 to 12 months, however most agents are friendly and want to help. Again, the agent would provide what needs to be done in writing and will work with the company to solve this issue.
The most common issue would be delinquent employee payroll deposits, which would lead the DOL to require a completed Form 5330 along with an excise tax deposit of 15% of the earnings amount. Luckily, this is preventable with the right knowledge, software, and preparation.
Employee Benefits Lawyers at Brucker & Morra
When facing an investigation by the Department of Labor or IRS, it’s important for plan sponsors to comply with these correction programs. With decades of experience working alongside these federal programs and correction plans, Brucker & Morra can help with your submissions and reduce your penalties. Contact us to learn how we can help you move forward from a DOL or IRS investigation.Back to top