United States

Conduct self-audits

Top 10 ways to reduce your fiduciary liability #3


The plan sponsor should conduct periodic self-audits to ensure that its plans are being administered in accordance with ERISA and the plan document. A self-audit can also ensure that the plan operates more efficiently and, as a result, can help to minimize plan costs as well as fiduciary liability.

When a compliance problem is discovered during a self-audit, the problem can often be corrected using one of the compliance programs sponsored by the DOL or IRS, such as the voluntary compliance program.

The plan sponsor should be aware of the warning signs that indicate when a self-audit would be appropriate. For example, problems often arise when there is a change in human resources or payroll personnel, plan procedures, payroll systems or service providers (such as accountants, attorneys, actuaries or third-party administrators). The plan sponsor should consider conducting a self-audit following any one of these events in addition to periodic self-audits.

One key aspect of compliance with ERISA is administering the plan as stipulated in the plan document. This sounds easier than it is and ERISA attorneys believe that many well-intended plan fiduciaries are not following this rule. Some common areas of operational breaches involve not using the definition of compensation in the plan document; not remitting deferrals as soon as administratively possible; not distributing forfeitures on an annual basis, and so on.

Even though an annual financial audit of the plan conducted by an independent auditor may uncover a compliance issue, such annual financial audits should not be viewed or relied upon as comprehensive compliance audits. An independent financial audit only examines the plan’s financial activities and does not examine the plan’s compliance activity in detail. It’s important to stress that self-audits help ensure that fiduciaries are following the plan document.

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