COBRA Litigation Risk on the Rise

If you are an employer that is subject to COBRA, you are probably aware that there are significant penalties that the Department of Labor can assess if you fail to offer coverage or give proper COBRA notice to employees or beneficiaries who lose the health coverage that you provide. These penalties are up to $110 per day for each violation, and they can add up quickly. This alone causes most employers and vendors to take COBRA compliance seriously. What you may not know is that these same employees or beneficiaries can also sue you for common and inadvertent COBRA compliance issues.

COBRA Litigation Risk on the Rise

COBRA Lawsuits

Unfortunately, there appears to be a new wave of class-action lawsuits targeting employers who may have used an outdated COBRA notice or maybe did not give clear instructions on where to mail COBRA premiums or really any number of other COBRA compliance violations.

One of the firms filing these lawsuits is Visiting their web site you will note a list of common mistakes employers make that can lead to litigation. These mistakes involve more than just missing deadlines in providing a COBRA election notice. The list includes contacting only the employee losing health coverage and forgetting to also contact the covered spouse and dependent children—remember each covered family member has an individual COBRA election right.

The website also boasts about million dollar settlements recently won on behalf of individuals whose COBRA rights were either violated or not administered properly. This should be a wake-up call for employers to examine their COBRA procedures to ensure full compliance. Given the number of furloughs and lay-offs occurring throughout the U.S. due to COVID-19, this COBRA examination or audit becomes urgent.

Reviewing COBRA Practices

Findley stands ready to assist employers in reviewing their COBRA practices. This can even be in the context of a full ERISA audit. Since many employers outsource COBRA administration to a third party, Findley can also help employers review those administrative agreements and recommend changes to indemnification provisions to protect the employer from the administrator’s failures or omissions.

For more information about auditing COBRA administration and litigation risk, please contact Bruce Davis in the form below.

Published May 29, 2020

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When Duty Calls Your Employees: USERRA and COVID-19

As companies across the country continue to adapt their operations to respond to the COVID-19 pandemic, nearly one million employees may be pulled from their employers to serve the federal government in its efforts to battle the disease. The recent “call up” authorization for up to one million reserve members to active duty is a good reason for businesses to review obligations of the Uniformed Services Employment and Reemployment Rights Act (USERRA).

In late March, President Donald Trump authorized a call up of “elected reserve and certain members of the individual ready reserve of the armed forces.” The call for service of reservists may be for a period of up to two years.

In 1994, USERRA was established to provide certain job protections for uniformed service members and impose employment-related obligations on their civilian employers. All private and public sector employers (including foreign employers doing business in the United States) are subject to USERRA — regardless of the employer’s size. Along with full-time employees, part-time and former employees are covered under USERRA. However, employees who are in positions not reasonably expected to continue indefinitely fall outside USERRA’s protections.

While the employer obligations and employee protections under USERRA have not changed, it’s important for employers to understand the compliance requirements and confirm that the necessary compliance documents and forms are in place. Organizations should also communicate with reserve employees in a responsive manner.


1. An employer cannot delay a service member’s reemployment solely out of concern that the service member’s service in a COVID-19 affected area may have exposed him or her to COVID-19.

In accordance with USERRA, an employer must reemploy Service members returning from service in the Uniformed Service ‘promptly’.  Title 20, Code of Federal Regulations (C.F.R.) 1002.181 states that ‘prompt’ typically means within two weeks of the employee’s application to return to work, unless unusual circumstances exist. In some cases, a reinstatement beyond the typical two-week period may be warranted due to the company’s policy regarding the COVID-19 health emergency as applicable to all employees.

Please also note that the company policy should be broad in scope and intended for all employees traveling to areas with a high risk for exposure to the Coronavirus. If an employer’s policy limiting return to work is focused only on service members, it could be viewed as discriminatory under USERRA. Please see 20 C.F.R. 1002.18 regarding discrimination.

The employer may want to consider “temporarily providing paid leave, remote work, or another position during a period of quarantine for an exposed reemployed service member or COVID-19 infected reemployed service member, before reemploying the individual into his or her proper reemployment position.”

2. An employee may still be laid off or furloughed upon return from their military (including National Guard) service if they would have been subject to that action unrelated to their service.

USERRA at a Glance

USERRA covers:

  • Pension plans covered by ERISA and certain pension plans not covered by ERISA, such as those sponsored by a State, government entity, or church for its employees. However, USERRA does not cover pension benefits under the Federal Thrift Savings Plan (which are covered under 5 U.S.C. 8432b).
  • Group health plans that are subject to ERISA and plans that are not subject to ERISA, such as those sponsored by State or local governments or religious organizations for their employees
  • Multiemployer plans maintained pursuant to one or more collective bargaining agreements between employers and employee organizations

The Protections and Obligations under USERRA are Extensive

Right to Timely Reemployment

When uniformed service members (with five years or less of cumulative uniformed service during the relevant employment period with the civilian employer) leave to perform uniformed service, they must be timely rehired upon their return, assuming “notice to employer” requirements had been met in advance (and no exceptions apply), and provided they were discharged under honorable conditions. It is important to note that notice is not required if “military necessity” prevents the giving of notice; or if the giving of notice is otherwise impossible or unreasonable. In addition, there are exceptions to the five-year requirement.

To qualify for USERRA’s protections, a service member must be available to return to work within certain time limits. These time limits for returning to work depend (with the exception of fitness-for-service examinations) on the duration of a person’s military service.

Right to be Restored

If uniformed service members are eligible to be reemployed, they must be restored to the job and benefits they would have attained had they not been absent due to military service or, in some cases, a comparable job.

Right to be Free from Discrimination and Retaliation

An employer may not discriminate (or retaliate) against a member of the uniformed services due to past, current, or future military obligations. The ban broadly extends to hiring, promotion, termination, and benefits. In addition, an employer may not retaliate against anyone assisting service members in asserting or seeking to enforce their USERRA rights, even if the person assisting them has no service connection.

Health Insurance Protections

If health plan coverage would terminate because of an absence due to military service, they must be allowed to continue their existing employer-based health plan coverage (including dependent coverage) for up to 24 months while in the military, and even if they elect not to continue coverage they must be allowed to reinstate their coverage upon return, and generally, without any waiting periods or exclusions (if one would not have been imposed had the person not been absent for military service) except for illnesses or injuries connected to their military service.

Note: If a service member is on active duty for more than 30 days, military health care is provided to the service member and their eligible dependents. In addition, service members cannot be required to pay more than 102 percent of the full premium for the coverage. If the military service was for 30 or fewer days, the person cannot be required to pay more than the normal employee share of any premium.

USERRA Notice/Poster

Employers, regardless of size, are required to provide to persons entitled to the rights and benefits under USERRA, a notice of their rights, benefits and obligations. Employers may provide the notice “Your Rights Under USERRA” by posting it where employee notices are customarily placed. Employers are also free to provide the notice to employees in other ways that will minimize costs while ensuring that the full text of the notice is provided (e.g., by handing or mailing out the notice, or distributing the notice by e-mail). The poster can be downloaded here from the Department of Labor website.

For a complete list of protections and obligations under USERRA, see A Guide to the Uniformed Services Employment and Reemployment Rights Act on the DOL website.

The DOL offers a USERRA checklist for employers.

To learn more, contact Scott Williamson at or 615.665.5317 or John Lucas at or 615.429.3279

Published May 13, 2020

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The DOL and the IRS Issue New COBRA Notices and Extensions


In response to the National Emergency declared by President Trump on 3/1/2020, the DOL’s Employee Benefits Security Administration (EBSA) is taking efforts to help workers who have had a reduction in hours and could be at risk for unnecessary high costs.


COBRA timeframes, Special Enrollment timeframes, as well as Claim Procedure and External Review Process timeframes, have all been extended after the Outbreak Period ends, which is determined to be 60 days after the National Emergency is declared over. As of this writing, the National Emergency has been ordered through 7/25/2020. That means the Outbreak Period would end on 9/23/2020. So essentially, the “Qualifying event” is the date the Outbreak Period ends for these timeframes, not the date of the actual event or loss of coverage.

The DOL and the IRS Issue New COBRA Notices and Extensions

For example, in the case of a termination of employment on 3/15/2020, that employee would have until 11/22/2020 to elect COBRA. Remember, the final date to elect COBRA is a 60 day extension from the end of the Outbreak period. For an employee who previously declined group health plan coverage and had a baby on April 17, 2020, they have a special enrollment period and have until October 23, 2020 (30 days after Outbreak period), to enroll herself and her child in coverage. These extensions are effective back to 3/1/2020.


The Joint Notice technically applies only to plans subject to ERISA and the Code. However, it appears HHS intends to adopt a policy to extend similar timeframes to non-federal governmental group health plans and insurers. HHS encourages governmental group health plans to provide similar relief.


These extensions are unprecedented, and employers and plan administrators will need to take steps to ensure that participants understand the new rules. Employers and plan administrators may want to consider supplementing and modifying COBRA forms, special enrollment notices, and summary plan descriptions, to reflect these extensions.

Although it is not required, we feel it is the responsibility of the plan administrators to notify plan participants and their beneficiaries of their COBRA rights. Below you can find model notices from the DOL, along with an FAQ, that you can use to help communicate with your employees. You should work with your COBRA vendor to help notify plan participants that would be eligible. Please note that providing these notices will NOT necessarily protect you from potential COBRA related litigation.

COBRA model notices

Frequently Asked Questions

For more information or questions regarding how these notices and extensions could impact your organization, contact Dave Barchet at or 216.875.1914 or Blake Babcock at or 216.875.1904

Published May 8, 2020

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Benefit Plans Get Disclosure and Filing Relief in COVID-19 Emergency

On April 29th, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued EBSA Disaster Relief Notice 2020-01 (Notice) to provide employers with additional relief as they make their way through the national emergency due to the Novel Coronavirus Disease (COVID-19) Outbreak. The guidance applies to employee benefit plans, employers, labor organizations, and other plan sponsors, plan fiduciaries, participants, beneficiaries, and service providers subject to ERISA from March 1, 2020 until 60 days after the announcement that the national emergency is over, or such other date announced by the DOL. Additional guidance can be found in  29 CFR Parts 2560 and 2590 and 26 CFR Part 54.

The Notice was a coordinated effort of the Department of Labor’s EBSA, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS). Specifically, HHS intends to exercise enforcement discretion and extend timeframes (similar to those announced by EBSA) applicable to group health plans and health insurance issuers offering coverage as to group health plans, their participants, beneficiaries and enrollees. HHS is also urging states and health insurance issuers offering coverage as to group health plans to operate in a manner consistent with the Notice.

Benefit Plans Get Disclosure and Filing Relief

Extension of Deadlines

Specifically, the Notice extends the time for furnishing benefit statements, annual funding notices, as well as other notices and disclosures (e.g. summary plan descriptions, summaries of material modification) required by Title I of ERISA, provided that the efforts to issue such notices and disclosures are made in good faith. The Notice specifies that an employee benefit plan and the plan fiduciary will not violate ERISA for failing to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days following the announced end of the COVID-19 national emergency.

Expansion of Electronic Delivery of Notices or Disclosures

The DOL specifies that acting in good faith includes use of electronic means of communicating with plan participants and beneficiaries if the plan fiduciary reasonably believes that participants and beneficiaries have effective access to such electronic communication means as email, text message and continuous access websites.

Relief for Deadlines in ERISA’s Claims Procedures

For group health plans subject to ERISA or the Internal Revenue Code, the additional time gives employers, participants and beneficiaries additional time to comply with certain deadlines affecting COBRA continuation coverage, special enrollment periods, benefit claims, appeal claims and the external review of certain claims.

For disability, retirement and others plans subject to ERISA’s claim procedures, participants and beneficiaries are given additional time to comply with deadlines for benefit claims and the appeal of denied claims.

Specific Areas of Relief in the Notice

The Notice provided specific guidance in connection with plan loans and distributions, participant contributions and loan repayments, blackout notices, Form 5500 and Form M-1 filings.

Form 5500 and Form M-1 Filings

Relief for Form 5500 and PBGC deadlines was described in Findley’s article Filing Extension to July 15th for Approaching Form 5500 and PBGC Deadlines. The deadlines for Form M-1 filings required for multiple employer welfare arrangements (MEWAs) and certain entities claiming exception (ECEs) are extended for the same period of time as the Form 5500 filings.

Plan Loans and Distributions

The Notice provides relief to an employee pension benefit plan that fails to follow procedural requirements for plan loans or distributions provided in the plan’s provisions. The relief is conditioned on the following factors:

  • The failure is solely attributable to the COVID-19 emergency;
  • The plan administrator’s efforts to comply with the requirements are made in good faith;
  • The plan administrator makes reasonable efforts to correct any procedural deficits as soon as administratively practicable (e.g. obtaining missing documentation).

The relief for verification requirements is limited to those proscribed by Title I of ERISA. The relief does not extend to statutory or regulatory requirements under the jurisdiction of the IRS, such as spousal consent requirements.

Participant Loan Repayments and Contributions

Currently, amounts withheld from a participant’s wages by the employer for contributions or plan loan repayments are considered plan assets that must be forwarded to the plan on the earliest date on which those amounts can reasonably be segregated from the employer’s general assets. In any event, the amounts cannot be forwarded to the plan later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer. In this Notice, DOL announces that it will not take enforcement action with respect to a temporary delay in forwarding those contributions and loan repayments, as long as such delay is attributable to the COVID-19 emergency. Employers and service providers must act as soon as administratively practicable, and in the interest of the employees, to forward the delayed amounts.

Blackout Notices  

Currently, the administrator of an individual account plan is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, or restricted by a blackout period. The advance notice is triggered by a period of suspension or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans or other distributions from the plan. An exception to the advance notice requirement is provided when the inability to provide the notice is due to events beyond the plan administrator’s reasonable control. In this Notice, DOL announces that it will not take enforcement action with respect to a temporary delay in providing required blackout notices, including those required to be provided after the blackout period begins. The currently required written determination by a fiduciary for blackout notices will not be required during the COVID-19 emergency.

General ERISA Fiduciary Guidance

In this Notice the DOL provides that the guiding principle for plans must be to act reasonably, prudently, and in the interest of the covered workers and their families, including making reasonable accommodations to prevent the loss of benefits or undue delay in benefits payments. Plans should minimize the possibility of individuals losing benefits because of a failure to comply with the deadlines discussed above. The DOL’s approach to enforcement will emphasize compliance assistance and include grace periods and other relief where appropriate.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at, or 216.875.1927

Published on May 1, 2020

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Final Overtime Rule Threshold Set by DOL at $35,568


On September 24th, 2019 the U.S. Department of Labor (“DOL”) announced its final overtime rule setting the minimum salary threshold for overtime eligibility at $35,568 ($684 per week) for white-collar exemptions

Other proposed changes from the announcement include:

  • The new salary level requirement can be met by using annual or more frequent nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level test.
  • The exemption threshold for Highly Compensated Employees (HCE) will be set at $107,432, which is lower than the initial proposal of $147,414 but up from the current level of $100,000. HCE remain eligible for an exempt status if they are paid over the new amount and meet a reduced duties test. The reduced duties test includes:
    • The employee’s primary duty must be office or non-manual work, and
    • The employee must regularly perform at least one of the bona fide exempt duties of an executive, administrative or professional employee.
  • No changes to the duties requirements, which are evaluated in determining the exemption status of an employee.  This means a job reclassification, if any, will be based only on changes to the threshold amount.
  • The DOL has not set a time frame for automatic increases, as proposed in 2016, but commits to conducting periodic reviews to keep the thresholds in line with future wage rates and inflation.

Employers have 3 months to comply with the changes as the ruling takes effect on January 1, 2020. As a reminder, the Fair Labor Standards Act does not preempt stricter state standards.

Questions? Please contact the Findley consultant you regularly work with, Jen Givens at, 216-875-1944, or Brad Smith at, 419-327-4414.

Published September 26, 2019

© 2019 Findley. All Rights Reserved.

Audit Survival Tips for Retirement Plans

Although only a small fraction of retirement plans are audited each year, over time it’s almost certain that you and your plan will be audited by either the Internal Revenue Service (IRS) or the Department of Labor (DOL). Your preparation for an audit and your approach to an audit will save your organization thousands of dollars in productive time, penalties, and interest.

Audit or Investigation: A rose by any other name still has thorns

While both the DOL and IRS perform plan audits, their enforcement powers are governed by different laws and regulations, and they focus on different issues.

The DOL is responsible for the enforcement of labor laws, including the Employee Retirement Income Security Act (ERISA). The DOL has the power to exact penalties for breaches of fiduciary conduct, and if it chooses, it can sue fiduciaries for these breaches on behalf of a plan. In cases of egregious misconduct, it can initiate litigation that may put a plan’s fiduciaries in jail. The DOL’s investigation and enforcement emphasis is on fiduciary breaches and prohibited transactions. The DOL calls its enforcement program the Employee Benefit Plan Investigation Program.

The IRS is responsible for the management of our tax system through the Internal Revenue Code (the Code) and has the power to enforce infractions under the Code. When infractions are found, it can impose taxes, penalties, and interest. The IRS’s audit and enforcement emphasis is on compliance with the requirements of the Code, which rolls up under the umbrella of the plan’s tax qualification. The IRS calls its enforcement program the Employee Benefit Audit Program.

Both the DOL and the IRS select plans for audit primarily by random selection; however, there are a number of other audit triggers that sponsors should keep in mind. Answers to certain questions on the Form 5500 may trigger an audit. For example, checking the box indicating this is the plan’s final 5500 return or answering “yes” to the question, “Was there a failure to transmit to the plan any participant contributions within the time period described in the DOL regulations?” can trigger an audit. Participant or union notifications, complaints, or lawsuits also often trigger DOL investigations.

Bankruptcy filings and reports from the media can also trigger an investigation. In the spirit of interagency cooperation, the DOL may refer a case to the IRS if it discovers compliance infractions that are subject to penalties and interest under the Code.

While selection is generally random, there are certain audit initiatives that may focus on types of plans or sizes of employers, thus increasing the audit-selection odds for plans that fall within the initiative’s criteria. In 2014, 50 large employers were part of a program to determine the audit focus on future nonqualified plan audits. It is not uncommon for the IRS to issue plan sponsor questionnaires designed to help determine areas of audit focus, and—we suspect—to mark a certain number of plans for later audit. Failure to respond to an IRS questionnaire is comparable to sending the IRS an invitation to audit your plan.

Although the odds of your plan being audited are low, if the DOL or the IRS perceives some elevated risk of noncompliance, your chances of an audit will go up substantially.

It Begins with a Letter

The DOL and the IRS initiate their audit process through what they call an Information Request Letter. The Information Request Letter indicates the date the audit team plans its on-site visit to review documents and conduct interviews with individuals who have responsibilities in the administration of the plan. The letter also lists specific information that is to be made available to the auditor(s). This list often provides insight into the types of violations the auditor will be looking for during the audit.

The following list summarizes a DOL Information Request Letter that was recently sent to one of our clients regarding its pension plan. Looking at the list, it is apparent the focus is on fees and expenses.

  1. Corporate minutes
  2. Trust reports showing all receipts and disbursements
  3. Detailed documentation of fees and expenses paid from the trust
  4. Documentation regarding alternative investments
  5. Documents showing valuation of assets if assets are not readily tradable
  6. Service agreements and engagement letters
  7. Fee disclosure statements
  8. List of parties-in-interest
  9. Organization chart of the plan sponsor
  10. Trustee and investment committee minutes
  11. Plan documents, summary plan description, trust agreements, investment policy statements
  12. Summary annual reports
  13. Participant statements
  14. Evidence of fidelity bond, fiduciary liability insurance policy, if any
  15. Fiduciary training

For this client, follow-up questions focusing specifically on items 3, 6, and 7 required more detailed responses about the nature of the services provided and the fees charged. In DOL audits of defined contribution plans, we typically see a focus on fees and the timing of deposits.

Preparing for the Audit

It goes without saying, both preparation and attention to detail are essential for a positive audit experience. If you receive an Information Request Letter, don’t panic, but do recognize that you’ll need to immediately begin preparing for the audit process.

Your goal for the on-site visit is to make the auditors’ tasks as efficient as possible. Being difficult, defensive, or uncooperative is counterproductive; it wastes time, and it won’t make the auditors go away. Instead, use your time to review all of your plan documentation and begin collecting and organizing the information requested before the first auditor steps through your door. Investing ample time and energy before the on-site visit will insure that your entire team is fully prepared for dialogue, questions, and requests for further information during the on-site visit.

As part of the preparation process, we recommend that you defer or delegate projects due at the time of the scheduled audit, and you should also clear your calendar during that time in order to be available for dialogue and questions. Depending on your other responsibilities and projects, it may be wise for you to delegate the management of the audit to another team member while you retain decision-making and internal management reporting responsibilities.

It’s also essential that you notify other members of your plan administration team that your plan is entering into an audit to ensure they will be available to the auditors. Keep in mind that your plan team includes more than just fellow employees who work on the plan; it also includes your ERISA attorney, plan consultant, administrator, investment advisor, and trustee. You may want to consider having your legal counsel or consultant manage the audit for you. This is particularly useful if your provider is supporting you in most of the advisory roles of the plan.

Schedule a team meeting prior to the on-site visit to review the Information Request Letter, review plan provisions and procedures, and prepare for any questions. Having your plan documents and plan governance documentation organized, labeled, and bound makes the auditor’s job more efficient and conveys the message, “We’re ready for this audit, and we are not worried about anything.”

Finally, whether it’s the DOL or the IRS, if your schedule doesn’t permit you to be fully prepared or responsive, don’t be afraid to ask for more time before the on-site visit. The regulators recognize and appreciate it when you ask for a different schedule for good reasons. Like you, they can’t afford to waste time in an inefficient audit.

The Audit

Auditors are looking for specific information, so provide only what is requested. Ideally, your plan is in good condition, but if it isn’t, providing more information than is requested is like giving a hangman extra rope. During the audit, proactively address any issues of concern raised by the auditor, be available and responsive, and be patient with the process. In addition to the on-site visit, the audit team may take certain documents for further review.


The DOL focuses its examinations on prohibited transactions. The most common forms of “technical prohibited transactions” are late deposits of deferrals, problems with loans to participants, and improper processing of qualified domestic relations orders (QDROs). And as we saw in the Information Request Letter above, fees are of particular interest to the DOL. With most fees now paid by plan participants, the DOL focuses on enforcement of the fundamental fiduciary conduct that:

  • The fiduciary is acting at all times in the best interests of plan participants,
  • That fees paid by the plan (and its plan participants) are reasonable, and
  • Fiduciaries are diligent to avoid conflicts of interest in their hiring of advisors and service providers to the plan.


While the DOL focuses on participants and fiduciary roles and responsibilities, there is clearly a shared focus with the IRS on compliance (i.e., compliance with the plan document, compliance with regulations, etc.). Obviously, tax-related issues, such as current deductions or delaying the recognition of income, are in the IRS’s jurisdiction. So is compliance with the regulations that pertain to plan qualification, including nondiscrimination testing and all limits.

The IRS also looks at compliance with the plan document, which includes consistency among all your plan documents and plan operation, compliance with constantly changing regulations, and administration of plan eligibility. More recently, the IRS has become concerned with improper investment valuations in cases where an asset is illiquid or is not readily valued, which can cause an undervalued or overvalued benefit distribution.

The IRS will request information on your nondiscrimination and limits testing, including the primary data. You can expect your recordkeeper to provide the reporting of this testing and the primary data for their review.

The following is a list of the 12 most common issues the IRS finds in its audits of retirement plans:

  • Plan document not up-to-date
  • Plan operation doesn’t follow the plan document
  • Plan definition of compensation not followed
  • Matching contributions not made to all eligible employees
  • ADP/ACP test performed improperly
  • Eligible employees not allowed to defer
  • Deferral limits exceeded
  • Deferral deposit delay
  • Participant loans don’t follow plan documents, procedures and/or law
  • Hardship distributions improperly administered
  • Top-heavy requirements ignored
  • Failure to file Form 5500 timely

The process for both agencies becomes more complex if enforcement issues are found.

After the Audit

Most auditors we meet are assigned to multiple cases, so while you should be prepared to hurry up for them, you must also be prepared to patiently wait for their responses to you. Once the audit is completed, the auditor will follow-up with a phone call to verbally convey the audit findings; this phone call is followed by a written audit findings letter.


In the best case, the result of a DOL investigation is a “no action” letter. The plan has passed the DOL’s testing, and no further action is being pursued by the DOL. The letter may include disclaimer language that says there may be ERISA violations in certain areas, but no such activity was found during the investigation.

The more common letter these days is a Voluntary Compliance Letter, which documents that certain infractions were found (most commonly late deferrals or issues relating to the loan program), and certain corrective action under the Voluntary Fiduciary Compliance Program (VCP) is required. When egregious compliance errors are found, the DOL can sue for civil penalties on behalf of plan participants and initiate litigation against fiduciaries for breach of fiduciary responsibilities.


For an IRS audit, the best case is an audit findings letter showing that no further actions are necessary and that the audit file has been closed. If errors are found, then certain corrective action may be necessary through the IRS’s Audit Closing Agreement Program. Here, the general principle is to make the plan and its participants whole. This often includes a corrective contribution plus interest to plan participant accounts, excise taxes required by Code Section 4975, and other fees and penalties payable to the IRS.

If you and your legal counsel disagree with the audit conclusions in some way, there is an appeals program that enables another review of the audit findings and your position.

Fortunately for plan sponsors, the voluntary corrections and audit corrections programs have made plan disqualification extremely rare.

Staying prepared: a different kind of “selfie”

Because plan administration is so complex, it’s common for plan sponsors to have some correction issues at some point in the life of the plan. Many of the errors that occur and corrections that need to be made arise out of a triggering event, such as payroll staff turnover, system changes, one-off processing events, annual limits, or business reorganizations.

If you’ve had a potential error-inducing event, it may be time to conduct a self-audit to ensure that your plan’s operation is consistent with plan documents and all laws. Performing regular self-audits will give you greater protection against an IRS or DOL audit.

As a plan sponsor, there are three things you can do to make your plan audit-ready, should that letter arrive from the DOL or the IRS: organize, review, and retain. We’ve provided a list of action steps below. You’ll notice that organize and retain steps are simple and really only involve good record-keeping practices, while some of the steps in the review phase may involve engaging an advisor to ensure the correct result.


  • Current records
  • Records eligible for summarization and archiving


  • Updated roster of key plan officials, including external advisors
  • Investment policy statement, loan procedures, QDRO procedures documents
  • Determination letter and upcoming determination letter cycles
  • Service agreement for necessary changes to reflect actual operation of plan, changes in law or regulation
  • Documentation of internal controls and update as needed
  • Fees and fee changes, fee disclosures, and documentation
  • Plan and data transmission requirements with payroll staff
  • Plan document and summary plan descriptions against plan operation
  • Fidelity bond coverage
  • IRS 401(k) Fix-It Guide and make self-corrections as necessary
  • Plan operation relative to terms of plan
  • All documentation related to corrections under SCP or VCP


  • Signed plan documents, trust agreements, plan amendments, and board resolutions
  • Summary of materials modifications, summary annual reports, and other required participant notices and document their dates of distribution
  • Investment process documentation and decisions, committee minutes
  • Compliance testing, participant allocation, and other plan operation reports
  • Current Form 5500, schedules, and audit report
  • All documentation related to corrections under SCP or VCP

As you can see, this process is similar to the year-end close of a corporation’s financial statements and tax return filings, and it’s an opportunity for you to review, update, and finalize your records for the year. You should adopt this practice as part of your year-end close or annual review and planning process.

Correcting Errors

If you find a problem during the self-audit of plan operations or in your review of plan documentation, there are ways to voluntarily correct these problems. Depending upon the nature of the issue, you may be able to self-correct your plan, document the corrections for the file, and move forward without a formal filing with the IRS or the DOL. More significant issues, such as failing to amend the plan timely or failing a nondiscrimination test and discovering the problem in a later plan year, generally require filing for and obtaining approval of the self-correction methodology.

The more common the problem, the more likely it is that other plan sponsors have experienced the same thing. The IRS and the DOL continually publish new procedures for automatic corrections and guidance on how to perform formal corrections, so it’s likely that an issue you’ve uncovered can be corrected efficiently through a self-correction program before being discovered during an audit.

In Perspective

While getting that letter from the IRS or the DOL is never pleasant, if you do receive one of those much-dread letters, there are things plan sponsors can do to prepare. Reviewing the Information Request Letter, collecting the required information, being thoroughly familiar with your plan’s operation, and of course, fully cooperating with your auditors will go a long way in getting you through the audit.

And while the chances of being audited are relatively low, the most successful approach is to assume that you will be audited and prepare accordingly by performing an annual self-audit. Adding a self-audit to your annual compliance calendar will save you time and your organization dollars. And if that’s not enough motivation, consider these words of wisdom from Dave Barry: “We’ll try to cooperate fully with the IRS, because, as citizens, we feel a strong patriotic duty not to go to jail.”

For more information contact Tom Swain at 615.665.5319 or or the Findley consultant with whom you normally work.

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DOL Proposes $35K as New Overtime Rule Threshold


A long-awaited announcement was made yesterday from the US Department of Labor (DOL). It published a proposal raising the salary level requirements to $35,308 per year ($679 per week) for white collar exemptions. The proposed threshold, up from the current $23,660 ($455 per week), is estimated to provide overtime eligibility to more than a million additional US workers if passed.

Other proposed changes from the announcement include:

  • The new salary level requirement can be met by using annual or more frequent nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level test. This is a change from the 2016 proposal which required nondiscretionary bonuses to be paid at least quarterly to be included.
  • The proposed Highly Compensated Employees (HCE) threshold is $147,414, up from the current level of $100,000. The Obama administration proposed $134,004 in 2016. 
  • No changes to the duties requirements – meaning job reclassification, if any, will be based only on salary.
  • No automatic increases, as proposed in 2016, however, the DOL is proposing a required review every four years to ensure the threshold keeps up with inflation.

As a reminder, the Fair Labor Standards Act does not preempt stricter state standards. The public has 60 days to respond to the announcement. A final ruling is expected by January 2020.

We will continue to inform you of any advances in the proposed overtime rules as they become available.

Questions? Please contact the Findley consultant you regularly work with, Jen Givens at, 216-875-1944.

Posted on March 8, 2019

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