DEPARTMENT OF LABOR AUDIT CHECKLIST

Federal oversight of 401(k) plans is essentially divided between the Internal Revenue Service (IRS) and the Department of Labor (DOL). The IRS oversees the qualified status of 401(k) plans and issues determination letters. The DOL oversees fiduciary standards, reporting and disclosure requirements, and all other rules that do not affect the qualified status of 401(k) plans. Audits are generally random, but can also result from information submitted on the Form 5500 or employee complaints. So what should you expect if your plan is selected for an audit? Generally, you will be sent an initial letter by the IRS or DOL looking at the following items:

1. Current plan document and all amendments
2. Current trust agreement and amendments
3. Most recent summary plan description
4. Most recent summary annual report
5. The latest fidelity bond policy and riders/endorsements for the plan covering fraud and dishonesty that includes the following information: bond lapse date, amount of the bond, named insured(s), discovery period, deductible, and name of the surety company
6. Fiduciary liability insurance policy, if applicable
7. The most recent internal income statement which indicates receipts and disbursements of funds in connection with the plan
8. Most recent internal balance sheet/statement of assets and liabilities for the plan
9. Schedule of plan assets, 2008 to present
10. Most recent Internal Revenue Service letter of determination
11. Minutes of plan board of trustee’s meetings from the three most recent plan years, as well as minutes of trustee committees, subcommittees, other plan administrative groups and any other plan committee meetings
12. Financial records for the last three years; trust reports – both schedule of assets and schedule of transactions; and, if the plan funds are held in a checking account, savings account or other general ledger account, copies of transaction statements
13. Service agreement, provider contracts (insurance contract agreements, investment manager agreement, third party administrator contracts, actuaries, attorneys, and accountants)
14. A sample quarterly participant benefit statement that may be redacted of all personally identifiable information
15. For all loans made, held, acquired by, or involving the plan (including participant loans as well as any loans secured by mortgages)
    • A list of any and all loans made to any person, firm or corporation
    • A list of all participant loans that exceed five (5) years for any loan used in acquiring a principal residence, attach supporting documentation (i.e., construction loan contracts, HUD documents, purchase/sell agreement)
    • A list of any and/or all loans that were in default within the preceding four (4) years
    • Identification of collateral (UCC-1 filings, trust deeds, mortgages, etc.)
    • Internal procedures followed in obtaining loan from the plan
    • A set of sample loan documents
16. Annual report forms 5500, with the audited financial statements and any schedules or attachments for the last three years filed
17. All documents regarding fees incurred by the plan for services rendered to the plan, including but not limited to internal fees and commissions, performance-based fees and/or commissions
18. All documents regarding costs, either direct or indirect, charged to the plan by the sponsor, its affiliates or subsidiaries and/or any entity in which the sponsors owns ownership interest
19. All documents related to the company’s organizational structure and management structure, including but not limited to articles of incorporation, corporate by-laws, partnership agreements and organizational charts
20. Any and all documents which describe the plan’s compliance with ERISA requirements, including but not limited to ERISA compliance policies and procedures, names of employees responsible for ERISA compliance, any ERISA compliance audit, reviews or examinations, and any documents which describe any ERISA compliance violation and correction of the violation
21. All documents that disclose any arrangement wherein the plan, plan fiduciary, plan sponsor, its agents or employees, or any affiliated entity receives monies or other property, directly or indirectly, as a result of making a recommendation or selection of any investment for the plan
22. All documents regarding investment performance of the plan, including but not limited to analysis regarding the dismissal or retention of portfolio investments

Plan documents and amendments provided to the IRS and DOL must be signed. If signed amendments cannot be provided, the DOL can and probably will assume the amendment(s) was (were) never in affect and impose penalties and fines. It is best practice to ensure that all items on the above list are readily accessible in the event your 401(k) plan is selected for an audit.