Retirement Plan Reviews


How to reduce negative scrutiny.


Two of the most unpleasant phrases to a business owner are DOL investigation and IRS audit.  When retirement plans are the focus of an investigation or audit, having the documentation from an annual retirement plan review can help a company justify their actions and decrease the length of the investigation or audit.  Employees need an annual retirement plan review as well.  The specifics of an employee review differ from the employer’s annual review.  However, one benefits from the other.  There is a strategy to creating reviews.  They are a check-up to be sure everything is going as planned. However, for employers, they are also a time to bolster vulnerabilities to audits or investigations. 

For an employer, the retirement plan review is not an obligation that should be delegated to anyone but the trustee of the retirement plan.  Various duties to maintain the retirement plan can be assigned to staff.  However, it is in the trustee’s best interest to be personally involved in the process as well as document meetings and communication related to the retirement plan.



FOUR PROBLEMS


There are four leading problems that will bring investigators or auditors to a business’ door.  The first and most predominant reason is employee complaints.  If a current or terminated employee thinks they were treated poorly, it is very easy for them to file a complaint.  In 2015 over 201,000 complaints were filed with the Department of Labor concerning employee benefit plans which include retirement plans (DOL, 2016).  A way to be proactive in avoiding employee complaints is to make available a process that will help employees remain aware of the operation and progress of their personal retirement account.  The second source of audits and investigations is from the Form 5500.  Some companies are not aware that a separate Form 5500 is required for each employee benefit.  Or, if the form is completed incorrectly, errors may trigger an audit or investigation.    Third, some industries are more prone to DOL investigations or IRS audits because they are targeted by the DOL or IRS.  And lastly, one audit or investigation can trigger another.  If a company goes through an IRS audit and the IRS auditor sees a problem, they can refer that company to the Department of Labor for an investigation.  Similarly, a DOL investigation can trigger an IRS audit.


FOUR PARTS


The retirement plan review process should have four parts; employee, plan documentation, administrative, and investment reviews.  A big reason that employees become unhappy with retirement plans is they do not understand them. Regular reviews give the employees a reason to keep their retirement plan in mind and monitor its progress.  Employees that are educated about their retirement plan are more likely to fulfill their retirement plan goals and less likely to complain.  

Employers can structure employee reviews in whatever manner they see fit.  Some companies will want to give time during work hours for in-person reviews.  Other employers may prefer everything is done online.  The decision depends on what the retirement plan provider has available and what the business feels will work best for their workforce.  It is significant to remember that employee complaints are the number one source of DOL investigations and IRS audits.  Employee retirement plan reviews are designed to communicate the usefulness and structure of retirement plans to employees.  A better-informed employee is less likely to complain in the future.

Plan documentation, the second part of the retirement plan review process, is tied to the tax status of the plan and the progress of the employees’ retirement.  However, retirement plan documents have so many complexities that a specialist is usually retained to maintain and review the retirement plan documents. There are two types of retirement plan documents, prototype and non-prototype.  Regardless of the type of document, the document needs to be current with IRS and Department of Labor regulations.  

Plan documents have so many intricacies that it is best to establish a relationship with a retirement plan administrator that will keep up with the document requirements.  IRS and Department of Labor regulations are changing so frequently that at a minimum, plan documents should be reviewed with the trustee of the plan annually.  

Retirement plan administration, the third part of the retirement plan review process, deals with deposits and withdrawals going into the plan plus investment reporting.  Timely deposits, correct allocations of deposits, and accurate tax reporting are just a few of the deposit and withdrawal responsibilities.  This includes correctly completing the Form 5500 for the trustee’s signature.  This aspect of the retirement plan administration is vital since errors can trigger an audit or investigation.   Some investment providers take care of both aspects of administration.  And then there are investment providers that only accept responsibility for keeping the employees up-to-date on their investments and leave the deposits and withdrawals to a third-party administrator. 

Investment reporting is critical to the proper function of a retirement plan.  So much so that separating the responsibility to clarify the process is a prudent step.  Employees are required to receive a minimum of quarterly updates on their account status.  Most retirement plans have electronic access to employee accounts that allows them 24-hour a day access. Recent investment fee regulations have also mandated that employees receive detailed information on any fees charged to their accounts. 

Retirement plan investment reviews, the fourth part of the retirement plan review process, are different from investment reviews with the employee.  Investment reviews with the trustee are a time to go over the investment policy statement and see how the investments are performing compared to the guidelines set in the investment policy statement.  If investments are underperforming, it may be a time to consider replacement or putting those funds on a watch list.    This is a reason why the investment policy should not be too complicated; it must be detailed enough to show prudence in the investment monitoring process.  However, it cannot be so overwhelming that the goals can never be met.

In conclusion, establishing a thoroughly structured retirement plan review process will benefit employees by helping them to better understand and make full use of the company retirement plan. Plus, a regular process will lessen the likelihood of employee complaints.   And a thoroughly structured retirement plan review process will help employers to reduce the burden of possible DOL investigations and IRS audits.   

The next step in the company retirement plan process is benchmarking retirement plans. (Back)


References

Department of Labor. (2016). Fact sheet. Retrieved from Employee Benefits Security Administration website: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/ebsa-monetary-results.pdf

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