From the annual hassle of hiring an accountant to review pension plan finances to the ever-present threat of a Department of Labor investigation, “audit” is virtually a four-letter word for plan sponsors, advisers and administrators. diet. But they don’t have to be a bad thing.
In fact, performing regular “mini” plan audits breaks compliance down into more manageable, bite-sized chunks. These voluntary reviews require minimal time and resources and can pay big dividends. Not only do they help ensure that plans run smoothly before a required plan audit, but they can also uncover issues that are not on an accountant’s or auditor’s watchlist.
Mini-audits can be used to verify on-site virtually any subject for benefit compliance. Whether it’s looking at plans for expensive items that are the subject of DOL and IRS audits or manually selecting an area for review, the key is to limit the scope of the audit, by focusing on focusing only on those directly affected by the provisions of the issue. Here are some examples of compliance topics that plan sponsors have successfully self-verified using a particular line of inquiry:
Reconciliation of the registration system with the trust
What method is used to reconcile the record keeping system with the trust? Do participant records match trust statements? How often does the administrator perform a reconciliation and clear the variance items?
Defined contribution loans
Are delinquent loans properly tracked and in default after the required period? Do changes in employee status such as unpaid time off or pay frequency transfers result in missed loan payments? Could any process changes or improvements be developed to minimize them?
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Minimum required distributions (RMD)
Has the plan updated its RMD protocols in accordance with the changes introduced by the SECURE law? How does the administrator ensure that joint and non-joint beneficiaries of deceased defined benefit and defined contribution members are paid on their RMD dates?
What happens when participants move from one position, division, or classification (for example, hourly for pay or union versus non-union) with different eligibility requirements? What procedures are in place to end contributions to the first plan and start contributions to the next?
What does the return mail administrator do? How are uncashed checks handled? Do they want all are the benefits due paid to the appropriate beneficiaries? Are they making enough effort to ensure benefits are paid to hard-to-find members, beneficiaries of deceased members, and other beneficiaries of qualified family relations orders?
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When a payroll employee adds a new pay type definition (for example, a pay code for jury duty, paid sabbaticals, or volunteer days), care is taken to indicate whether the new type payroll is eligible for the plan? Skipping this step is a common cause of missed or ineligible contributions.
Plan sponsors may also consider more in-depth “operational audits” as a way to improve administrative efficiency and improve the member experience. Examples include comparing the plan documents with the configuration of the administration system and processes outlined in the operations manuals; review the flow of eligibility and other payroll data to back office systems; sampling benefit calculations over different distribution types and scenarios; and review the management of checks, lump sum payments, periodic death searches and address changes.
Due to their broader scope, these reviews are often more time consuming than mini-plan audits, requiring a significant commitment of internal resources or the assistance of an external specialist. But on the bright side, they usually only need to be done periodically to keep a plan working properly.
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By incorporating frequent mini-audits – and perhaps an occasional operational audit – into ongoing plan management routines, plan sponsors can identify and resolve compliance issues on their own terms. Many minor plan failures can be corrected without having to contact the IRS or pay a fee. For more serious errors, plan sponsors may be able to anticipate an IRS audit by taking advantage of the agency’s voluntary correction program.
Importantly, mini-plan audits reveal to plan sponsors where they stand on critical compliance issues, alleviating the uncertainty that makes an unexpected IRS or DOL auditor so intimidating in the first place.