Is YOUR Auditor Finding Them Before the DOL?

The DOL (Department of Labor) works to make sure employees are treated fairly. Our job is to avoid having our clients undergo a DOL audit—especially a “bad” one. Prevention is always an excellent idea in the accounting world. And like the Scouts, we want to “Be Prepared.”

Your 401(k) auditors should be keeping your 401(k) squeaky clean so the Department of Labor doesn’t find a tiny oversight that will start them looking for others. We hate when that happens. For that reason, we’re listing some of the more common errors that we’ve seen, and hope we can encourage you to make certain your auditor finds things ahead of the DOL. 


Here’s what to do.

1. Make sure someone knows the details. 

The Human Resources manager, Controller or CFO in your company must be familiar with the day-to-day operations of your company’s 401(k) plan. They need to understand employees’ eligibility requirements (i.e., length of service, hours per week, etc.), and how each employee is entered into and contributes to their specific plan. More importantly, management must thoroughly understand the company’s retirement plan, and talk to their plan service providers — the plan’s custodians or TPAs (Third Party Administrators) if there’s any question. Each company’s 401(k) plan is a little different, so “seen one, seen them all” doesn’t work. One of the errors we see most often in our audits is when a company is not following their 401(k) document to the “T.”  The devil, as they say, is in the details.

2. Know how the DOL gets wind of an oversight.

The DOL gets copies of financial statements and Form 5500’s (the Annual Return of Employee Benefit Plan.) They look for patterns, and a good auditor knows what constitutes a red flag for the DOL. Here’s a tip: FILE the 5500 ON YOUR DUE DATE

  • Nothing will flag an audit like a missed filing. 
  • It is always 7 months after the Plan year end, or July 31 for traditional 12/31 calendar year end plans. 
  • Two ½ months after the first deadline which is, if you need an extension, you need to fill out Form 5558, and the new extended due date is Oct 15 for calendar year end plans.

NOTE: The extension document needs to be filed BEFORE the 7/31 date.

Sometimes, it’s a disgruntled employee or an upset participant that blows a whistle.  Let’s not go there! But if they do, you’d better be a good Scout and be prepared with “squeaky clean” records.

3. Understand what “late contribution remittances” are and why they’re bad.

  • Be aware that this is a DOL “favorite” that they often spot through your independent audit reports.
  • Assure that your HR department quickly rectifies these errors when they are pointed out to avoid penalties. 

Check out this article from our staff on timely remittances.


Stay on top of these common errors.

Forfeiture Account Mishandling

When a participant in the 401(k) plan gets a percentage match from the employer, and then they leave the company before they are fully vested, the money that was reserved goes into a forfeiture account. Most companies use this account to pay plan expenses or used to pay future employer matches. But, some plans require that these funds get reallocated at the end of the year to its participants.  

Whatever the amount is in the forfeiture account, it must be used for the purposes outlined in your 401(k) plan. This is particularly critical when an employee gets a distribution–generally when they leave the company for another job or retire. One of the goals of a retirement plan audit is to verify what the employer match portion was; then, to make sure what was paid to them on the employer match portion is in line with the plan provisions. For examples, on a five-year vesting schedule, a four-year-employee who leaves would forfeit 20% of their employer match.

If the plan designates a reallocation, the amount left is divided equally among the number of people in the plan or based on other criteria outlined in the plan provisions. The amount is irrelevant. If there’s $100 or $100,000 with 500 people in the retirement plan pool, either dollar figure would need to be reallocated appropriately. Auditors test for this to make sure the DOL doesn’t find that it has been done incorrectly.

Automatic Enrollment Errors

Your auditor should check for these errors. The error can be an incorrect percentage at the initial set-up, or the employer has not enforced the automatic enrollment provisions. 


Here’s What Errors Cost.

It’s not pretty. If the DOL descends upon your 401(k) with sharp pencils and beady eyes, they will be looking for errors that can cost money and invite fines. In fairness, though, the employees were due an amount of money according to the plan, and if they do not receive it, the system fails. If it’s your money and your retirement, of course, you want it to be correct!

When we auditors find errors such as late remittances or forfeiture account inconsistencies, we report this on audited financial statements. Ideally, the employer sees the note and corrects it. The DOL may see the notation, and then check to see if the employer fixed it. If not, this could potentially trigger a full-blown DOL audit, which we are trying to avoid. 

If there’s a mistake, it must be corrected. As the employer, you have to pay an excise tax and pay lost earnings for late remittances. The TPA is responsible for helping the employer with calculating the amount of time and the amount to be returned to the employee.

  • Potential penalties can involve the recovery of back wages and liquidated damages, with the chance of civil money penalties. Criminal prosecution can be enforced in appropriate cases as well but is typically reserved for a willful violation.
  • The other cost is the loss of faith the employees have in their employer.
  • Eventually, these kinds of things can find their way into the news media. Ugh.


BOTTOM LINE: Avoid DOL audits, save money, and keep good employees.

Internal audits are a necessary evil because ‘stuff’ happens. Human error, vacations, someone gets fired, people not keeping up, and so forth are all normal. Most importantly: 

Make sure the people that need to know the details of your 401(k) plan are on top of it!

Look to the custodians and TPAs to help educate and to relay the specifics of your plan to the HR manager, Controller, and/or CFO because plans are often uniquely structured for each company. No one likes DOL audits and no one needs penalties. And of course, everyone wants to keep good employees. 

A good auditor can help with all of those.  

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Disclaimer:  This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors for specific information relating to your company’s 401(k).

Jessica Vasquez

As a supervisor, Jessica brings with her extensive experience in employee benefit plans, manufacturing, real estate, and retail distribution. She is very detailed oriented; it's all about the details! She has extensive knowledge and application of GAAP, Auditing Standards (GAS & GAAS), and the principles of internal accounting controls as it relates to client specific matters.