I had a client who had been undergoing a Department of Labor (DOL) audit. Their mistake? Years ago, a former participant asked for a distribution from this trustee directed profit sharing plan (so no 401(k)) and my client failed to respond. There was no second request as the participant contacted the DOL.

The plan is small potatoes; maybe $700,000 in assets and the employer can’t make employer contributions since the economy downturn a few years back.

The DOL auditor conducted an interview with the client. I sat in on the call without alerting my presence because the last thing I wanted to do is let the DOL agent be alarmed that ERISA counsel was retained. The agent sounded so young and the last thing I wanted to do was scare her.

The interview basically was a script, she even asked questions that only pertained to a 401(k) and my client alerted that the plan had no salary deferrals. The script sounded like one of my articles (without the cultural allusions to Caddyshack, Airplane!, and The Godfather). The DOL agent wanted to know if the plan had an investment policy statement, whether there was a financial advisor on the plan, whether that advisor is in contact, and whether there is a process to review the advisor’s work. Additional questions were about the third party administrator, where there was a contract with them, and fee disclosure. Thankfully, the plan sponsor was able to give the right answers and the audit concluded quickly.

The lesson here is that whether the plan is audited by the DOL because of a complaint or something random, a plan sponsors needs to have a well run retirement plan so they could give the DOL agent the correct answers they are looking for. Better have a plan that is well run prior to a DOL audit, it’s less costly that way.