The Department of Labor (“DOL”) assesses significant penalties for an improperly filed Form 5500. Mistakes on an ERISA plan’s Form 5500 create a nice target for the Internal Revenue Service’s auditors, too.
While the number of filing deficiencies are frequent among smaller plans (i. e., plans with fewer than 100 participants), which aren’t required to have an annual CPA’s independent financial audit, the DOL is concerned about the increasing number of deficiencies it sees for plans that receive a CPA’s annual financial audit.
Until now, a retirement plan participant’s transfer or rollover of their account balance to an individual retirement account (“IRA”) was, for the most part, off the grid of plan sponsors’ fiduciary management systems because IRAs were not under the jurisdiction of the U.S. Department of Labor.
Due to the new Conflict of Interest rule, however, IRA rollovers will require a great deal more care and oversight by plan sponsors than before.
A recent study performed by the DOL found that a startling number of employee benefit plan audits were deficient. The DOL study also found that there was a “clear link between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed.”
The DOL found that 33% of audit reports reviewed failed to comply with one or more of ERISA’s reporting and disclosure requirements. It believes that this error rate is at an unacceptably high level.
Corporate risk tied to employee benefit plans is escalating, refocusing the pursuit of excellence from program features to risk management. Many businesses and nonprofit organizations are changing their risk management systems in an attempt to meet these increasing risks head-on.
Broad in its reach, short on implementation specifics, and bristling with teeth, ramped up enforcement of fiduciary duty under ERISA has sent CFOs and HR executives scrambling to get a handle on how to ensure their organizations’ compliant oversight of retirement plans.
As 401(k) and 403(b) type retirement plans mature, the need for internal controls for managing fiduciary practices grows, too. According to Department of Labor reports, those controls are sorely lacking in most plans.
There are 5 key reasons that internal controls for fiduciary governance lag far behind other corporate risk categories. Computer technology offers a convenient permanent solution.