Advisors that overemphasize retirement readiness and investments with clients and prospects may be missing the boat. Most plan sponsors, especially front-line people, want to know if their plan is in compliance and whether they would pass a DOL audit.
Though fines and reimbursements collected by the DOL’s EBSA enforcement division were down in 2014 (totaling $600 million, down from $1.7 billion in 2013), that’s cold comfort if your client is selected for audit. There are a number of recently released resources that may be helpful for advisors.
Vanguard publishes a Service Administration Manual that lists the most common areas of focus for an audit:
- Contributions not applied correctly
- Eligible employees not receiving their match
- Required amendments to plan document
- Rights of terminated employees
- Documented process
- Operation effectiveness
While larger plans may be picked at random, smaller ones can get selected by checking the wrong box on the Form 5500. Investment policy statements, though not required, are helpful; JP Morgan recently sponsored a white paper by Fred Reish on the topic that focused on prudent processes for putting an investment on a watch list and replacing that investment, along with a checklist for creating an IPS. And the ERISA Law Group recently published a checklist of ways to limit exposure.
It’s not rocket science and you don’t need to become a TPA — but as a plan advisor you can’t ignore the basics, especially if that’s what matters to your clients and prospects.
