Federal oversight of 401(k) plans is essentially divided between the Internal Revenue Service and the Department of Labor. The IRS oversees the qualified status of 401(k) plans and issues determination letters. The DOL oversees fiduciary standards, reporting and disclosure requirements, and all other rules that do not affect the qualified status of 401(k) plans. Audits are generally random, but can also result from information submitted on the Form 5500 or employee complaints. So what should you expect if your plan is selected for an audit? Generally, you will be sent an initial letter by the IRS or DOL requesting the following items:

• 401(k) plan document and all amendments
• Summary plan description
• Investment policy statement
• Copy of the most recent IRS determination letter
• Copies of Forms 5500 and 5500-C
• Correspondence files for the plan (i.e. meeting minutes)
• Investment analyses
• ADP and ACP testing results
• Account statements for participants and beneficiaries (most recent)
• Contribution summary reports
• Loan applications and amortization schedules for all loans

Plan documents and amendments provided to the IRS and DOL must be signed. If signed amendments cannot be provided, the DOL can and probably will assume the amendment(s) was (were) never in affect and impose penalties and fines. It is best practice to ensure that all items on the above list are readily accessible in the event your 401(k) plan is selected for an audit.

Look for more detailed discussion on the IRS’ EP examination program in my next blog.

Joe Goodmiller

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