Preparing for a Retirement Plan Compliance Audit

September 10, 2013|Parker Elmore

For some businesses, “audit” can be one of the most feared words in the English language. Fortunately, plan sponsors can help protect themselves by calling upon Odyssey Advisors, in addition to consulting with legal counsel and/or other experienced advisors. Odyssey helps clients prepare for the possibility of an audit by helping ensure their retirement plans are shipshape before an auditor ever knocks on their doors.

We encourage businesses to conduct a plan review annually, bi-annually or even more frequently with an eye toward uncovering common problems, many of which can be easily and inexpensively rectified. In light of the new plan-level and participant-level disclosure regulations focused on retirement plan fees and commissions, a TPA can be an invaluable resource.  The cost of a TPA’s fees and commissions may, in some cases, compare favorably to the potential liabilities associated with adverse findings from a U.S. Department of Labor (DOL) audit.


We have discovered several common mistakes made by business owners when it comes to the retirement plans they sponsor:


Failing to follow the plan document. Plan sponsors are responsible for keeping retirement plans in compliance with applicable regulations. They may also be responsible for communicating certain changes to the plan document or plan’s operation to their plans’ service providers. Changes to the plan document should also be reflected in the summary plan description, as appropriate. Mistakes can happen and when they do, they should generally be corrected as soon as possible.

Neglecting to enroll new employees in the retirement plan in a timely manner. The plan document should clearly define who is considered an “employee” and spell out the requirements for when employees become eligible to become plan participants and make elective deferrals to the plan. It’s not uncommon for plan administrators to mistakenly assume their plan does not cover part-time workers or fail to account for employees who choose not to make deferrals when the employer is making contributions to the plan or running nondiscrimination tests.

Ignoring loan provisions. Many defined contribution plans permit loans to plan participants. However, plan sponsors should make sure that loans are permitted under their plan documents and that they meet the requirements of any applicable regulations before allowing participants to borrow money from the plan.

Forgetting to file Form 5500. Plan sponsors of certain ERISA plans (subject to certain exceptions) are generally required to file an accounting of the plan’s assets, operations and other details annually on the DOL’s Form 5500. Employers sometimes make the mistake of assuming that a TPA or service provider has filed on their behalf.

Failing to invest the assets on a timely basis. Employers are responsible for contributing elective deferrals by plan participants into the appropriate plan trust or plan account. Employers need to determine the earliest date they can segregate deferrals from general assets. That date should be compared to the actual deposit dates and any plan document or other requirements.

Although fines for infractions can be stiff, the DOL and U.S. Internal Revenue Service (IRS), both of which oversee aspects of retirement plan compliance, have taken pains to help plan sponsors both spot and correct problems. Many minor operational missteps can be fixed through the regulators’ voluntary/self-correction programs, which, in certain circumstances, permit plan sponsors to correct certain plan failures without contacting the IRS or DOL.

We believe the key is to be proactive. It’s critical for businesses to frequently review their retirement plans for compliance, and Odyssey can be instrumental in this process. Doing so won’t necessarily help a plan sponsor avoid an audit, but it can help make the word “audit” a lot less scary.

Parker Elmore is president of Odyssey Advisors . Odyssey provides expert consultation in the design and management of employer-sponsored retirement plans and works with retirement plan providers such as MassMutual, a contributor to this article. Parker Elmore can be reached at 855-401-GAIN or at

Parker Elmore and Odyssey Advisors are not affiliates of MassMutual.

MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.

This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. This information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice.


Categories: Retirement