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DOL Audit Risk: Missing Participants in Defined Benefit Plans

Posted by Brian Dunfee on Feb 15, 2018 9:16:00 AM

Department of Labor Audit RiskThe challenge of locating missing participants for benefits due to them under a qualified retirement plan is nothing new.  However, an apparent new focus by auditors with the U.S. Department of Labor (DOL) regarding vested benefits under a defined benefit pension plan (DB) is making this challenge especially onerous and, potentially, costly.

The DOL has recently begun seeking out for audit inquiry those plans that have filed Form 5500s indicating large numbers of terminated vested participants.  The data included on the census file may be focused on demographic and historical payroll data in order to provide for accurate benefit payment calculations.  However, as time goes on, those components of the census may not change but mailing addresses can become obsolete very quickly after termination of employment and as time progresses beyond that date.

According to the DOL for audits that have been completed thus far, their findings will often be that there has been a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA).  While there is no data yet to indicate assessment of monetary penalties, it is certainly within the DOL’s jurisdiction to enforce these kinds of penalties.

So, what can you as a plan sponsor do to help insulate your Plan (and its fiduciaries) from this potential liability?  Here are some suggestions:

  • Census Review
    • Conduct an initial review of participant ages as of the beginning of the current year to identify those that will be eligible for benefits in the next 12 months based on the provisions of your plan document.  Going forward, this review should be conducted at the beginning of each subsequent plan year.
  • Certified Mail
    • The DOL is signaling that this is the preferred method to use to reach out to those terminated vested participants who have not yet had their pension benefits initiated.  This allows the plan sponsor to be notified if the letter was received or not and can often indicate if an address is no longer valid in a more timely manner.  It also demonstrates a good faith effort to reach the participant.
  • Form 8955-SSA
    • Ensure that the data you are furnishing to you recordkeeper/third-party administrator/5500 preparer, etc. is accurate and that the filing is made timely.  The DOL does review these returns in conjunction with the 5500 filing to identify those individuals with vested benefits potentially due to them or their beneficiaries.

For additional information, contact your Meaden & Moore professional.

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Topics: Accounting & Auditing, Benefit Plan Advising & Auditing

Brian Dunfee

Brian Dunfee

Brian Dunfee is a Director in Meaden & Moore’s Assurance Services Group. With 19 years in public practice, Brian has extensive audit experience, especially in the field of employee benefit plan audits. He has a strong understanding of the operations and compliance of many types of employee benefit plans, which he developed through planning, preparing, and supervising those audit engagements.