With the increased scrutiny placed on the financial services sector as of late, the Department of Labor has grown more intentional – and intense – with its regular audits of company retirement plans.
At McCabe & Associates, one of the largest mistakes we see companies make as they manage their retirement plans is failing to be properly prepared for audits. Over the years, we’ve seen trends emerge regarding the biggest red flags these organizations search for, and, unfortunately, many companies fail to comply with:
- Performing the appropriate due diligence: Choosing an advisor and/or third-party plan administrator without performing research and due diligence can hurt you when it comes to an audit. Always look for the most appropriate option when it comes to meeting your specific goals. Finding a trusted advisor is the best way to begin the due diligence process for your retirement plan.
- Failing to document appropriately: This is one of the most frequent infractions we see companies reprimanded for because everything must be documented. If you have a meeting with your employees, all the details (including attendees) must be appropriately noted. You must include an agenda of what was discussed. By having a committee in place to help you with documentation, you should be better positioned to succeed in meeting this requirement.
- Communicating poorly: The DOL and the IRS want to be sure you’re communicating plan options and details appropriately to your employees. If an employee declines to invest, they want proof you provided him or her with relevant information to make this decision properly. Having a regular communication plan can help you meet this requirement.
- Lacking a proper investment policy statement: Your plan’s advisor and/or third-party administrator should provide you with a copy of the plan’s investment policy statement (or IPS), at the onset of investing with the plan, as well as whenever plan changes are made. If you don’t have one, get one! If you have one, follow it!
- Continually investing in poor-performing funds: Retirement plans are comprised of many funds, but over time, if one of the included funds continually underperforms, it should be re-evaluated and potentially removed from the plan. Working with an experienced advisor will help ensure this is always being considered.
- Failing to monitor plan administrators: When you hire an advisor and/or a third-party administrator to provide plan services, the DOL and the IRS want you to monitor them appropriately. Are they communicating with you regularly? Do they have any black marks on their records with clients? Are their fees appropriate for the services they are providing? Make sure you’re paying attention.
- Not executing on promises made: Ultimately, the DOL and the IRS want you to do what you tell your employees you’re going to do. If you tell employees something is available that isn’t, or if you promise to have a meeting describing the plan and fail to, they’ll look poorly upon your plan execution. Have your committee hold you accountable for your promised actions.
Are you prepared for a retirement plan audit? Do you know where all of your documentation is? You never want to answer a question with “I don’t know.” Find out how our advisors can help you manage your plan and help you avoid making this mistake.
At McCabe & Associates, retirement plan consulting is not a sideline business. Our advisors average over 30 years of experience in the retirement plan market, and we oversee over $125 million in retirement plan assets. In the end, our goal is to ensure your and your employees’ best interests remain at the forefront of each decision we make together.