1. Surviving a DOL Audit: Health and Welfare and Retirement Plan Audits: Are You Ready?
The bad news and the good news…
Presented by
Stephanie Roupe and Keith Robertson Employee Benefits Compliance, Alliant Employee Benefits
November 12th, 2015

2. AGENDA SURVIVING A DOL AUDIT What is the DOL’s role
Why does the DOL Audit?
What does a Health and Welfare Audit Look Like?
- News about the DOL
- What causes an audit
Process
Being Prepared
Responding to an Audit
What does a Retirement Plan Audit Look Like?
- Process
- Past court cases
- Red Flags During a Health and Welfare Audit
Outcomes
Key Take Away’s

3. What is the Department of Labor?
Surviving A DOL AUDIT
What is the Department of Labor?
The Department of Labor (DOL) is in charge of programs and laws that cover all facets of employment and work. DOL administers federal labor laws covering workers’ rights to safe and healthful working conditions, a minimum hourly wage and overtime pay, freedom from employment discrimination, unemployment insurance and other income support. Altogether the department enforces more than 180 federal laws. These mandates cover workplace activities for about 10 million employers and 125 million workers. The DOL enforces Employee Retirement Income Security Act (ERISA), Occupational Safety and Health (OSH) and the Fair Labor Standards Act amongst several others.

4. Why does the DOL Audit?
Definition of an audit by the US Department of Labor:
The term "audit" is used by the Federal Government to describe not only work done to examine financial operations, but also encompasses work to:
review compliance with applicable laws and regulations,
evaluate economy and efficiency of operations, and
evaluate effectiveness in achieving program results.
An audit is a look at the past performance of an entity, program or function to determine whether funds were properly administered and whether the projects have met or fallen short of program intent and expectations. 
Types of Audits:
Financial audits- determine whether the financial statements of an audited entity fairly present the results of operations.
Performance audits- include economy and efficiency, program effectiveness and results, internal controls, and compliance objectives.
Attestation engagements- concern reporting on specific subject matters or management assertions.

5. What does a Health and Welfare audit look like?

6. Nearly ¾ of plans audited resulted in fines or penalties1
Audits on the Rise
Nearly ¾ of plans audited resulted in fines or penalties1
$1.69 billion collected by DOL in 2013—33% increase over 20122
IRS targeting plan sponsors with 2,500+ participants
1,000 new DOL investigators1
An increase in Department of Labor (DOL) audits is expected as ACA implementation continues
Audits ensure compliance with the rules and are a revenue source — impetus for increased audits
Even if the risk is low, the potential ramifications are significant — so, preparation is essential
Being prepared for an audit is more important now than ever. The Department of Labor (DOL) has added 1,000 new investigators. And the large majority—nearly three quarters—of plans audited by the DOL had issues that resulted in plan sponsors being fined, penalized or forced to make reimbursements.
In 2013 alone, they collected $1.69 billion in fines, voluntary fiduciary corrections and informal complaint resolutions. That’s 33% more than in In addition, the Internal Revenue Service (IRS) is targeting plan sponsors with 2,500+ participants for review of all qualified plans vs. one specific plan. 
FIDUCIARYBESTPRACTICES
1 “Sure your 401k would pass an audit? Last year, most didn’t,” HRMorning.com, Feb. 21, 2014.
2 “DOL retirement plan non-compliance fines up 33 percent,” BenefitsPro.com, Feb. 4, 2014.

7. FIDUCIARYBESTPRACTICES
What Causes an Audit?
Random chance
Participant complaint
Form 5500 issue
Referral between IRS and DOL
Media ?
What are some audit statistics?
DOL audits happen thousands of times annually, but overall — the chances of an audit are relatively low
In 2012, the DOL conducted 3,500 audits
Participant complaints generate about 25% of the audits
The DOL identifies areas of interest on which each regional office focuses its resources - MEWAs are a frequent enforcement target
In today’s environment, what can cause you to be selected for an audit? It could be a lot of things: a Form 5500 issue, a complaint from a participant, a referral from the IRS to the DOL or vice versa, a story in the media or even just random chance.
The bottom line is that you just don’t know what might lead to an audit. That’s why it’s critical to be prepared.
FIDUCIARYBESTPRACTICES

8. DOL Audit Process Generally
SURVIVING A DOL AUDIT
DOL Audit Process Generally
How will we know we’re being audited?
A letter from the regional DOL office
The letter includes a case number and an extensive request for documents
Once the DOL opens an investigation, almost all plan operations and provisions can be reviewed
What happens during the DOL audit process?
“The letter”
List of documents to be reviewed
Meeting to discuss audit scope and objectives
Observation of operations
Interview of plan personnel within your organization
Review of other documents
Review, analyze and document relevant information
Meet to discuss results and proposed recommendations
Auditor decides whether to take further action
If violations are very minor or already fixed, there is usually no further action or a “Voluntary Compliance” address civil penalties.
Receive letter from IRS/DOL that the audit is closed

9. BAD NEWS GOOD NEWS
A few things you should know. Bad News…Good News
Bad News: DOL examines compliance with the following provisions of ERISA:
HIPAA
Newborns’ and Mothers’ Health Protection Act
Women’s Health and Cancer Rights Act
Genetic Information Nondiscrimination Act
Affordable Care Act
Number of documents reviewed has doubled over the last five years.
Good News: Most information requests will be addressed by a handful of key documents or sets of documents already in your files
For Alliant clients, tools are available where there are gaps (Wrap SPD, HIPAA Toolkit)

10. DOL Audit Process… Bad News, Good News
Information Requested
Responsive Document/Info
Notes
Plan Document
SPD/Medical Plan Doc
SPD and Plan Doc often the same
SPDS and SMMs
SPD and SMMs
Summary Annual Reports
SARs/5500 Filing
5500 software provides
Plan’s Contact Info/Person
HR Professional/Day to day plan operations
All Service Providers
TPAs
All contracts for health benefits
Carrier contracts
Most recent monthly bill
Carrier invoice

11. DOL Audit Process… Bad News, Good News
Information Requested
Responsive Document/Info
Notes
Proof of payment
Wire transfer/canceled check
Claims admin and stop loss contracts
ASO or TPA/stop-loss contract
Self-funded plans
Docs on ER/EE cost
Open enrollment (OE) materials, SPD
Eligibility terms of plan
OE materials, SPD
Enrollment Form
OE materials
Relevant EE handbook section
Employee Handbook
Cert of Creditable Coverage (CCC)
Only if pre-ex prior to 2014

12. DOL Audit Process… Bad News, Good News
Information Requested
Responsive Document/Info
Notes
Record/log of CCC
Notice log if plan maintains
Only if pre-ex prior to 2014
Written procedure to request CCC
SPD
General pre-ex notice
SPD, OE materials
Individual pre-ex notice
Individual files, log
CCC by alternate means
Claims denied due to pre-ex
TPA/carrier claims admin records
Special enrollment rights notice
OE materials, SPD

13. DOL Audit Process… Bad News, Good News
Information Requested
Responsive Document/Info
Notes
COBRA notice
Initial/General COBRA Notice, SPD
COBRA TPA
Written appeal procedures
SPD/Plan Document
Medical/surgical vs. mental health
Aggregate lifetime/annual limits documents
SPD/Plan Document, SMMs since 2010
Newborns’ Act notice
OE Materials, SPD/Plan Doc
Pre-auth rules for childbirth hospital
SPD/Plan Doc
WHCRA – initial and annual notice
Initial enrollment materials, SPD/Plan Doc

14. DOL Audit Process… Bad News, Good News
Information Requested
Responsive Document/Info
Notes
Wellness program document/RAS info
OE materials/SPD
If offering a wellness program
Grandfathered Plan Disclosure
If GF plan any time since 2010
Terms of plan as of March 23, 2010
SPD/Plan Doc from 2010
Measure GF changes
Age 26 enrollment notice
2011 OE materials or SPD/Medical Plan Doc
One-time notice
Rescission log and notices
Separate rescission docs
If rescission
Lifetime limit notice
2011 SPD/OE materials. Individual files.
If lifetime limits were maxed
Annual limits info
OE materials/SPDs since 2010
If annual limits

15. DOL Audit Process… Bad News, Good News
Information Requested
Responsive Document/Info
Notes
Choice of primary care provider notice
OE materials, SPD/Plan doc
If designation is required
ER provisions since 9/23/2010
OE materials, SPD/Plan Doc since 2011 plan year
Preventive services since 9/23/2010
SPD/Plan doc since 2011 plan year
Claims and appeals/external Review
SPD/Plan doc
Adverse benefit determination notice
TPA/carrier claims procedure docs
Independent Review Organization (IRO) contracts
TPA/carrier docs

16. Responding to an Audit RESPONDING TO AN AUDIT Kindergarten rules
Respond promptly and cordially
Organization
Provide documents in DOL-requested format:
Number and label front of each document to correspond to item number in the DOL request
One point person to gather docs and respond
Relevant rules
ERISA requires plans to maintain documents for a minimum of six years after the 5500 due date, best practice is eight years
Organizations adopt governing documents in many different ways — sometimes not at all. Establish a process.

17. What does a Retirement Plan audit look like?

18. Commonly Requested Documents
Plan document
Trust agreement
Insurance/annuity contracts
Form 5500 and auditor’s report
Summary Annual Report
Summary Income Statement
Benefit statements
Payroll reports
Deposit confirmation for participant contributions
Agreements with service providers
Document evaluating expenses paid by the plan
Summary Plan Description
Summary of Material Modification
Determination Letter
Fidelity Bond
Plan’s loan policy
As you can see, there’s quite a list of documents you may need to have available during an audit. [Read from slide.]
FIDUCIARYBESTPRACTICES

19. Braden v. Wal-Mart Stores: Tibble v. Edison International:
Fiduciaries at Risk
PAST court cases:
Tussey v. ABB, Inc.: Failure to monitor fees, negotiate rebates and much more
Braden v. Wal-Mart Stores:
$13.5M settlement for failure to negotiate lower investment management fees
Tibble v. Edison International:
Breach of duty of prudence by including retail-class shares in plan’s investment menu without investigating cheaper institutional-class alternatives
Fiduciary may have a personal liability
Plan committees have become targets for ERISA litigation
Prudent plan governance can help mitigate risk
As a fiduciary, you’re always expected to act in the best interest of the plan participants. You may even have a personal liability with respect to decisions made for the plan.
Recently, plan committees have become targets of ERISA litigation. Recent court cases include:
Tussey v. ABB, Inc. - plan fiduciaries held liable for failure to monitor fees, failure to negotiate rebates, selecting more expensive share classes when less expensive ones were available and loss due to not following their investment policy statement
Braden v. Wal-Mart Stores - $13.5M settlement for failure to negotiate lower investment management fees
Tibble v. Edison International – plan fiduciaries breached their duty of prudence by including retail-class shares in plan’s investment menu without first investigating the funds’ cheaper institutional-class alternatives
Proactive measures such as prudent plan governance can help mitigate risk and make a full-scope audit a non-event.
FIDUCIARYBESTPRACTICES

20. Possible Red Flags During a DOL Audit
One person makes all decisions
Insufficient training
No monitoring of fiduciaries
Lack of documented processes/procedures
Complex plan design
No committee charters
No minutes from committee meetings
Presence of ERISA expense account
No documented evidence on reasonableness of fees
Late participant contributions !
What are some of things the DOL considers red flags during an audit?
• One person is making all decisions – fiduciary and non-fiduciary
• There is no initial or ongoing training for fiduciaries and non-fiduciaries who work with the plan. The DOL is looking for proof of fiduciary training – this is quickly becoming a best practice.
• Fiduciaries are not monitored to ensure they’re performing their duties in accordance with standards of conduct.
• No documented processes/procedures
• A very complex plan design
• A lack of charters in place for committees
• Minutes of committee meetings aren’t prepared
• Presence of an ERISA expense account
• No documented evidence on reasonableness of fees
• Late participant contributions
FIDUCIARYBESTPRACTICES

21. Possible Red Flags During an irs Audit
Incorrect application of eligibility
Employees not made aware of their right to participate in the plan
Incorrect vesting calculations
Insufficient non-discrimination testing/refunds
Incorrect contributions in comparison to deferral elections and automatic enrollment
Incorrect definition of compensation used for contributions
Untimely submission of deferrals and loan payments
Contributions not within 415 limits
Trust and plan not operated for the exclusive benefit of participants
Late submission of Form 5500s, 1099s, etc. !
These are some of the areas that could be red flags during an IRS audit. [Read from slide.]
Sources: Page 84, & Audit Techniques for 401(k) plans,
FIDUCIARYBESTPRACTICES

22. Understanding the GREY AREA
What is the basis for ERISA fiduciary responsibility?
In 1974, the Employee Retirement Income Security was enacted to create a uniform body of federal law to protect employee pensions and retirement.
ERISA responded to abuses that had occurred within pension plans by imposing strict standards of fiduciary behavior on persons administering plans and investing plan assets, and by providing mechanisms for enforcing these standards.
Participants have the right to sue plan fiduciaries directly for failing to live up to the fiduciary standards. In addition, the Department of Labor has the authority to investigate and bring enforcement action, in court or administratively, against fiduciaries for violations of ERISA’s fiduciary duties.
IRS vs. DOL
Qualified status of plans, including examining plans and processing requests for determination letters
Fiduciary standards, reporting and disclosure requirements
IRS
DOL

23. Potential Audit Outcomes With proactive practices…hopefully nothing!
 Otherwise…potential issues could include:
Costs to your organization:
Litigation issues:
Plan issues:
Potential penalties – average fine in was $600,0001
Fees from legal council, service provider, etc.
Downtime of human resources staff during audit
Loss of tax deductions for your organization
Excise taxes
Lawsuits by plan participants and others
Civil and criminal actions
May lose ability to be a fiduciary going forward
Taxable income to participants
Loss of plan’s tax-exempt status
Problems to resolve
What are some possible outcomes of an audit? With proactive measures that include documented governance practices and self-audits, it could be nothing.
If issues are found, however, you could have to deal with:
Costs to your organization, including penalties, legal fees, service fees, lost productivity of your human resources staff, excise taxes and the loss of tax deductions.
You may also face litigation issues, such as lawsuits by plan participants and others, or even civil and criminal actions.
There may also be plan issues like losing the ability to be a fiduciary, taxable income to participants, loss of the plan’s tax-exempt status and other problems to resolve.
1 “Sure your 401k would pass an audit? Last year, most didn’t,” HRMorning.com, Feb. 21, 2014.
FIDUCIARYBESTPRACTICES

24. Being Prepared for an irs Audit
Identification of roles/responsibilities internally
Annual Fiduciary training
Review administrative procedures and manuals
Hire experts
Have an up to date fiduciary file
Review governance library
Annual compliance guides
Month-by-month compliance calendar
Plan design modeling
Review of plan documents
Have an outside advisor complete a due diligence
Are you relying on accountant’s audit to find issues?
Have you conducted an internal audit to identify compliance issues?
HAVE A PROCESS, documentation and monitoring!
To help ensure you are prepared for an IRS audit should the situation arise, proactively conduct your own internal audit regularly to determine if any of the more common operational issues exist in your plan. We don’t suggest that you rely on your accountant’s audit to find compliance issues. Performing your own compliance review will help you determine if issues exist within each of your plans.
It’s also important to know your resources and how you will get information such as historical payroll reports if the DOL or IRS “knocks on your door.”
FIDUCIARYBESTPRACTICES

25. How A Trusted Advisor Can Help
How alliant can help
How A Trusted Advisor Can Help
Assist in document gathering
Compliance Checklist
Detailed checklist of plan regulatory requirements
Tools to fill in compliance gaps
Reform Review Tool
Reviews plan provisions with all components of health care reform to assess compliance
Open Enrollment Notice Checklist
List of documents required/recommended at open enrollment with distribution guidelines and best practices
Fiduciary File Creation
Annual Trainings

26. QUESTIONS?
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