Employers are well aware that the feds are aggressively looking into company-sponsored 401k plans for compliance issues. So it’s alarming to find out that the vast majority of plans the DOL looked at last year ran afoul of ERISA in some way.  

Specifically, 75% of the 401k plans audited by the DOL last year resulted in plan sponsors being fined, penalized or forced to make reimbursements for plan errors.

And those fines and penalties weren’t cheap. In fact, the average fine last year was $600,000 per plan. That’s a jump of nearly $150K from four years ago.

On top on that, 88 individuals — from plan officials to corporate officers to service providers — were criminally indicted for 401k offenses, according to the DOL.

DOL adds nearly 1,000 new enforcers

Firms that aren’t too worried because they believe their chances of being audited are slim may want to rethink that stance. This year, the DOL added nearly 1,000 new enforcement officers and has every intention of doing even more 401k compliance audits.

So that means it’s in every employer’s best interest to take a closer look at their ERISA-covered plans to make sure they’d pass muster in the event of a DOL audit.

To help, here are some of common errors the feds find when looking at 401k plans:

  • Excluding certain compensation. By far, the most common error plan sponsors make is excluding certain types of compensation when determining employee deferrals and employer matches for a certain pay period. The most common comp payments that are improperly excluded are bonus payments, overtime and vacation pay.
  • Giving incorrect asset valuation. Plan sponsors often get in trouble when the total value of the assets in the 401k plan aren’t accurately stated. Having the plan audited by an outside source and getting clear documentation that the plan’s valuation is safe and accurate should help keep you in compliance here.
  • Making prohibited transactions. The DOL’s always on alert for plan sponsor actions that essentially constitute a conflict of interest or misuse of plan assets and often finds “prohibited transactions” when it takes a closer look at a company’s 401k. To make sure you’re firm doesn’t fall victim to this error, the IRS offers this overview on prohibited transactions.

Note: The majority of employers should be having their 401ks audited by an outside source on a yearly basis. The DOL expects the majority of businesses with 100 or more active participants in a 401k to have the plan audited annually by an independent qualified public accountant as part of their Form 5500 filing.

This post originally ran on our sister website, HRBenefitsAlert.com


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