Tips to Avoid a DOL Audit

A recent article in Employee Benefit News addresses some of the Plan errors and problems that would catch the attention of the DOL

  1. Respond promptly to any employee questions or complaints. According to the article, the most frequent cause for DOL attention is employee complaints received by the DOL.
  2. Make sure your plan is clearly explained to all employees to avoid complaints
  3. Address trouble areas of the Plan before the DOL decides to audit
  4. File your 5500 correctly- this is the second most likely cause for your plan to receive the attention of a DOL audit

Common errors encountered filing the 5500 for a 401(k) plan include:

  • Not attaching all required schedules
  • Failing to answer multi-part questions
  • Failing to include all eligible participants in the participant count

Does your plan have procedures in place to address participant questions and complaints?

Aon Hewitt’s 2014 Universe Benchmark Report


Aon Hewitt recently released the results of their 2013 Defined Contribution Plans survey.  A few of their findings from the 2013 Plan year:

  • Average employee participation was 78.3%
  • Average employee savings rate was 7.5%
  • Average return was 17.7%
  • 6% of investments were in equities
  • 58% of plans offer Roth deferrals
  • 39% offer self-directed brokerage accounts
  • More than 25% of participants have an outstanding loan

How does your plan compare?

Targeting Your Audience

In Aegeon’s recent survey of employee retirement readiness featured in an article of Employee Benefit Advisor, 20% of employees reported that having frequent access to more information about their retirement savings would help them to save more.  At the same time, 38% of employees reported that they received no retirement communication, education or support at all.  Print communication is no longer the only or most effective method available; online tools, social media, websites and face-to-face meetings can be used to tailor plan outreach to employees of different cultures and backgrounds.

Which methods of communication are already utilized in your plan? Which methods are you considering implementing?  Have you evaluated the demographics of your employee workforce to determine the most effective communication methods for your Plan?

Participant Fear & Investing

According to an article in Employee Benefit News (EBN), new research recently published by Fidelity reveals that the fear of making a bad investment decision results in participants investing more conservatively than they should, producing lower returns and reducing the chances participants will reach retirement age with enough to fund their retirement.

Fidelity found that participants who review their portfolio more often are more conservative in their investments.  Participants are more likely to check their investments when the market falls and fear of experiencing more losses causes participants to sell their current investments and elect more conservative investments.  Fear of potential but uncertain events, what EBN refers to as ambiguity in the market, also prompts participant conservatism.

To avoid participant conservatism due to fear of ambiguity in the market and reactions to market fluctuations, participants should stick to age appropriate asset allocations.  The message- stay the course and focus on the long term investment goals.  EBN reminds participants that they should be long-term investors, not reactive to current events, for 35 of the 40 years of their career.

Have you noted an increase in changes to participant investment portfolios when the markets fluctuate?

Tips for Developing Your Plan’s Internal Controls

Our April 1, 2014 blog focused on the news that the IRS is taking a closer look at the Internal Controls of 401(k) plans when a plan is selected for audit.  A recent article from Employee Benefit News provides some tips for establishing strong internal controls for your 401(k) Plan:

  1. Develop annual review procedures for your plan to ensure all required amendments to the plan are executed by the mandated deadline
  2. Review your plan document to ensure the plan is operating under the terms of the document.
  • Common errors include:
    • Using an incorrect definition of compensation
    • Omitting eligible employees
    • Allowing loans and distributions that don’t fall within the perimeters set forth by the plan document
  1. Maintain oversight of your third party service providers
  2. Create a manual that outlines all the procedures for reviewing and approving transactions to meet the requirements set forth in the plan document

Does your plan have a manual outlining the procedures necessary to keep the plan in compliance with the plan document and all government regulations?

401(k) Annuities

An article from the June 2014 Employee Benefit Adviser reports that recent analysis by the Insured Retirement Institute (IRI) indicates an increase in the demand for annuities that offer guaranteed income for retirees.  Annuities parcel out a set amount of retirement funds over time, much like the pensions plans that have quickly disappeared from the current retirement landscape used to do.  According to the IRI analysis of data reported by Morningstar, Inc. and Beacon Research, the fixed and variable annuity sales in 2013 increased by 4.2% from 2012.  An industry advisor featured in the article reports that employers sponsoring small and mid-size plans have been most receptive to including annuities but that interest has grown with larger retirement plans as well.

Does your Plan currently offer annuity products?  Has your Plan’s investment advisor made the recommendation for you to include annuity products in your plan?

Common Problems of 401(k) Automatic Features

Auto enrollment and auto escalation features have been introduced to 401(k) plans to help increase plan participation, increase deferral rates, and help plans pass discrimination testing.  However, there are a few problems of implementing auto features within the plan that require plan sponsors to be vigilant.

  • Plan sponsors who fail to start the auto deferral or auto escalation at the appropriate time may create a missed deferral opportunity for participants which would require plan sponsors to make a qualified nonelective contribution.
  •  Participants who were auto enrolled would not have a designated beneficiary.  Failure to follow up with these participants may lead to frustration for plan sponsors years down the road as many of those participants affected by auto enrollment policies won’t be retiring for years to come.   Finding the appropriate beneficiaries, potentially years later, may be complicated by participant termination, changes in address, and changes in marital status.

Do you have policies in place to address the potential problems created by auto enrollment and auto escalation?

Plan Terminations and Form 5500

The IRS recently completed its Termination Project focusing on plan sponsor compliance in filing the Form 5500-series after sponsors had adopted a resolution to terminate their retirement plan.  The project found that over 75% of the sampled plan sponsors did not complete the termination process.  Common mistakes found in the survey were:

  • Plan sponsors filed a Form 5500 return marked “final return/report” but the return still showed assets in the plan at the end of the year
  • Plan sponsors distributed all assets in the plan but didn’t mark the Form 5500 as “final return”
  • Plan sponsors did not distribute all plan assets as soon as administratively feasible after the plan termination date
  • Plan sponsors indicated the plan was terminated on the Form 5500 when it was actually frozen


Are you considering terminating a retirement plan?  Are you aware of the IRS compliance requirements for doing so?

Trustworthy Plan Provider

According to an article from Plansponsor, the recent survey “Plan Sponsor Trust and Confidence Study” from the National Association of Retirement Plan Participants found that the most important factor in the plan sponsor selecting a plan provider is the plan provider’s trustworthiness.  However, the study finds that less than 70% of plan sponsors say they can “always trust their current plan provider to do the right thing for the plan sponsor and participants.”  Other factors plan sponsors considered when selecting their plan provider:

  • Customer Service
  • Technology
  • Education
  • Administrative Services
  • Cost

What factors did you consider when selecting you plan provider?  How trustworthy do you consider your plan provider to be?

2014 Retirement Confidence Survey

The 2014 Employee Benefit Research Institute Retirement Confidence Survey was recently released.  A few positive findings to consider for Plan Sponsors:

  • 18% of workers are confident they will have enough money for a comfortable retirement, up from 13% in 2013
  • Approximately 50% of workers without a retirement plan were not at all confident about their financial security in retirement, but only 10% of workers that had a retirement plan reported a similar lack of confidence
  • 90% of workers participating in a retirement plan saved for retirement, but just 20% of workers without a retirement plan saved for retirement

What programs do you have in place to encourage Plan participation?  Has the Plan experienced greater participation in recent years?