Is it time for your PEO health plan or  retirement plan to be audited? This is  something you think would never happen,  but you can’t be so sure. It only takes  one participant complaint call to put the  audit process in motion. In addition, the  Department of Labor (DOL) has yearly  metrics, just like you do. These metrics  serve two purposes. First, they ensure  health plans and retirement plans operate  as they should, and second, achieving  these metrics pays DOL personnel  bonuses and makes them eligible for  promotion, determines annual budgets,  and determines office performance  ranking at the end of the year. You need  to be prepared, and to do so you need to  know how not to be targeted for an audit,  but if you are, how to survive. 

Before we talk doomsday, let’s start  from the beginning. The Employee  Retirement Income Security Act (ERISA)  of 1974 is the federal law that covers fiduciary responsibility, tax compliance,  and insurance for defined benefit plans.  ERISA is separated into four titles and  the responsibility for the enforcement of  those titles falls to three different government agencies. 

  • Title I covers fiduciary responsibility  and its enforcement is covered by the DOL Employee Benefit Security  Administration (EBSA). 
  • Title II and III cover the tax qualifications of plans and its enforcement  is handled by the Internal Revenue  Service Employee Plans Division (IRS  EPD). 
  • Title IV covers plan termination  insurance of defined benefit plans  and its enforcement is handled by the  Pension Benefit Guarantee Corporation  (PBGC).

Audit Triggers

On to your audit prevention plan. How  do you not get audited? Let’s start with  non-metric-based audit triggers. Why  might your plan be targeted for an audit?  It’s simple. 

  • A participant/employee has filed a  complaint or allegation. It only takes  one call. 
  • You are a test target, a randomly  assigned project that comes from the  national EBSA office to all of the  regional offices. Each office must investigate a certain percentage of plans that  meet these criteria. 
  • Reviews of Form 5500. When investigators are not working active cases, they  review Form 5500s to identify questions  that may have been answered incorrectly  or for items that they believe may be a  problem. 
  • Referrals from other government agencies. The IRS EPD and EBSA have a  mandatory referral agreement that states  if an investigation reveals a problem, it  must be referred to the other agency for  review. 
  • Media attention. This could be news paper or TV stories about the financial  health of a company or its ownership.  There is usually a correlation between  company problems and plan problems.

Let’s drill down into more specific EBSA triggers flagged for audit by the DOL:

  • Commissions being received by PEO owned insurance agencies that are  reported on Form 5500 Schedule A
  • Fees received by the PEO that are  reported on Form 5500 Schedule C
  • Affirmative answers to Form 5500 questions regarding transactions with a party-in-interest
  • Inability of the plan to pay benefits  when they are due
  • Late contributions; and
  • Excessive fees to service providers.

Now let’s look at the metric-based  audit triggers. What most people don’t  know or understand is that EBSA has  budget metrics that are used to rank  each EBSA office for productivity. This is  important for you to know because it can  lead you to being audited. An important  side note is that EBSA has criminal and  civil powers they can enforce in a court of law, which tie directly back to their  metrics.  

Let’s discuss the specific metrics for  both civil and criminal cases.  

For civil cases, the metrics are: 

  • Number of cases opened (this is  concerning); 
  • Number of cases referred to litigation  (more concerning); 
  • Cases closed without results (great  outcome, still expensive on your part);  and 
  • Cases closed with monetary results  (good for them, bad for you).

For criminal cases, the metrics are:

  • Number of cases opened (again, this is  concerning)
  • Number of individuals indicted (ouch!)
  • Number of cases closed (more is  better—for them). 

Projects to highlight specific plans for  potential audit. There are currently five  national enforcement programs EBSA is  enforcing:

  • Rapid ERISA Action Team (REACT).  Media reporting regarding company  financial trouble, criminal indictments,  or bankruptcy triggers an audit.
  • Major Case Enforcement. EBSA has  said it will focus more investigative  resources on

The outcomes of criminal or civil  trials are important. As a trustee or a  fiduciary of a plan, you have personal liability. If EBSA finds that a fiduciary is  in violation of ERISA, it can, and will, go after the fiduciary personally. This personal  responsibility means you may have to pay  fines out of your pocket. In addition to the  monetary fines, EBSA has the power to  ban individuals from being fiduciaries to  ERISA plans. All of the potential EBSA  remedies are stressful and can lead to large  fines and big headaches. 

There are currently five  national enforcement programs EBSA is  enforcing: 

  • Rapid ERISA Action Team (REACT).  Media reporting regarding company  financial trouble, criminal indictments,  or bankruptcy triggers an audit. 
  • Major Case Enforcement. EBSA has  said it will focus more investigative  resources on fiduciaries and service providers with the greatest impact  on the protection of plan assets and  participant benefits. That means  fiduciaries and service providers with  large amounts of plan assets or that  administer a large value of benefits. In  2015 and 2016, EBSA rolled out a pilot  investigative audit program that focused  on both master health plans and retirement plans. Of the 10 plans audited,  EBSA found a 100 percent violation rate in the area of fiduciary compliance.  Based on this result, EBSA added  PEOs to the audit program.
  • Health Benefit Security Project  (HBSP). This program combines the  former comprehensive national health  enforcement project with Affordable  Care Act (ACA) provisions. EBSA  is focusing its efforts on returning  money to plans and their participants  adversely affected by improper administrative practices or the mishandling  of plan funds. EBSA continues its  ongoing efforts to detect and correct  violations found in Part 7 of ERISA. 
  • Multiple Employer Welfare  

Arrangements (MEWAs). EBSA  has devoted significant resources to  investigating and litigating issues  connected with abusive MEWAs.  Many times, these problems are  created by unscrupulous promoters  who sell the promise of inexpensive  health benefits but default on their  obligations. EBSA has put particular  emphasis on identifying abusive and  fraudulent MEWAs. 

Contributory Plans Criminal  Project (CPCP). The CPCP began  in FY2010 as EBSA’s first solely  national criminal project. In recognition that millions of American  workers who share in the costs of  employee benefits by contributing to  employer-sponsored retirement and  health benefit plans are vulnerable to  criminal abuse, the CPCP is designed  to address the full panoply of criminal  violations relating to contributory  plans. 

It is much easier to identify and  correct fiduciary violations of ERISA  prior to an audit by EBSA. Be sure to use  the proper experts to guide the operation  of your plans and to identify and correct  any potential defects. Once EBSA gets  involved, the process is much longer and  more time is required from you and your  team, and incurs greater costs.

Written By: William Kropkof