DOL Issues Guidance on Lifetime Income Disclosure for Defined Contribution Plans

If you have a really good memory you might recall that way back at the end of last year Congress actually passed a significant retirement bill called the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”). We prepared a brief article about the impact the SECURE Act would have on defined contribution accounts that you can find here.

COVID-19 and the employee benefit issues it has created seems to have overshadowed the SECURE Act, but the folks at DOL apparently remembered that they had been given a task. Section 203 of the SECURE Act amended ERISA to require that individual account balance plans add lifetime income disclosure to at least one participant account statement a year and the DOL was given until December 20, 2020, to provide plan sponsors with guidance on how these disclosures should be provided. The DOL has now released this guidance in the form of an interim final rule (IFR) along with a helpful fact sheet.

DOL Issues Guidance on Lifetime Income Disclosure for Defined Contribution Plans

Let’s Assume

The lifetime income disclosure illustrations are meant to provide participants with some idea of what their account balance would provide as a stream of income at retirement. The IFR provides plan sponsors with a set of assumptions and rules that must be used to prepare illustrations and comply with the disclosure requirements. These include:

  • The calculation will use a point-in-time current value of the participant’s account balance and does not assume future earnings.
  • It is assumed the participant would commence the lifetime income stream on the last day of the benefit statement period after the participant has attained age 67 (Normal Social Security Retirement Age for most individuals). If the participant is already over age 67 his/her actual age should be used.
  • The lifetime income illustrations must be provided in the form of a single life annuity based on the participant’s age and as a 100% qualified joint and survivor annuity presuming that the joint annuitant that is the same age as the participant.
  • Monthly payment illustration calculations will project forward using the current 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period.
  • Assumed mortality for purposes of the calculation must be based on the gender neutral mortality table in section 417(e)(3)(B) of the Code – the mortality table used to determine lump sum cash-outs for defined benefit plans.
  • Plans that offer in-plan distribution annuities have the option to use the terms of the plan’s insurance contracts in lieu of the IFR assumptions. For clarification purposes, it is important to note that nothing in the lifetime income disclosure rules require that plans offer annuities or lifetime income options.
  • Plans must use model language provided in the IFR to explain the life-time income illustrations to participants.

Sweet Relief

The concept of lifetime income disclosure has been under consideration by Congress and federal regulators for many years and one concern has always been what would happen if the actual results a participant experiences is not as good as these projections. The IFR addresses this concern by providing that if plan sponsors and other fiduciaries follow the IFR’s assumption and use the model language to comply with the lifetime income disclosure rules those fiduciaries will not be liable if monthly payments fall short of the projections.

Something to Keep in Mind

Plan sponsors and participants should keep in mind that the product obtained as a function of complying with these lifetime income disclosure rules is going to yield something quite different than the results that would be achieved through an interactive projection of a participant’s account.  Many retirement plan vendors and financial planners will utilize projection tools that take into account future contributions and earnings as well as attempting to anticipate potential market fluctuations and interest rate changes rather than simply basing a projection on a static period of time. While a participant may find the figures that would be generated by this lifetime income disclosure useful as a year over year comparative tool the participant should also explore other planning tools for a more complete and robust retirement projection.

Timing & Effective Date

This IFR was publicly released on August 18, 2020, and it is expected to be published in the Federal Register very soon. Interested parties have been given 60 days to comment on what the DOL has set forth. The idea is that the DOL will take the comments it receives and make any adjustments it feels are merited to the guidance and then issue final regulations that will supersede the IFR. The guidance in the IFR will be effective one year after publication in the Federal Register. If you have any questions regarding these topics and updates, please contact John Lucas in the form below.

Published September 3, 2020

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Year-End Spending Bill includes the SECURE Act and other Retirement Plan Changes


With the passage of the 2020 federal government spending bill less than a week before Christmas, Congress has gifted us with the most significant piece of retirement legislation in over a decade. This newly enacted legislation incorporates the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that was overwhelmingly passed by the House of Representatives earlier this year but never considered by the Senate. The spending bill even has a few additional retirement-related tidbits that were not part of the SECURE Act.

Here are some of the key changes:

Frozen Defined Benefit Plan Nondiscrimination Testing

Currently- Defined benefit plans that were frozen to new hires in the past and operate with a grandfathered group of employees continuing to accrue benefits have ultimately run into problems trying to pass nondiscrimination or minimum participation requirements as the group of benefiting employees became smaller and normally higher paid. This problem for frozen defined benefit plans has been around for a while and the IRS has been providing stop-gap measures to deal with it every year.

Effective as of the date of enactment of this legislation and available going back to 2013 – plans may permit the grandfathered group of employees to continue to accrue benefits without running afoul of nondiscrimination or minimum participation rules so long as the plan is not modified in a discriminatory manner after the plan is closed to new hires. This special nondiscrimination testing relief also extends to:

  • defined benefit plans that close certain plan features to new hires,
  • defined contribution plans that provide make-up contributions to participants who had benefits in a defined benefit plan that were frozen.

Increasing the 10% Limit on Safe Harbor Auto Escalation

Currently – a safe harbor 401(k) Plan with automatic enrollment provisions cannot automatically enroll or escalate a participant’s contribution rate above 10%.

Effective for Plan Years beginning after Dec. 31, 2019 – the 10% cap would remain in place in the year the participant is enrolled but the rate can increase to 15% in a subsequent year.

Simplifying the Rules for Safe Harbor Nonelective 401(k) Plans

Currently – All safe harbor plans must provide an annual notice prior to the beginning of the year that provides plan details and notifies employees of their rights under the plan. Also, any plan sponsors that want to consider implementing a safe harbor plan generally must adopt the safe harbor plan provisions prior to the beginning of the plan year.

Effective for Plan Years beginning after Dec. 31, 2019 – the notice requirement for plans that satisfy the safe harbor through a nonelective contribution has been eliminated. Also, sponsors can amend their plan to become a nonelective safe harbor 401(k) plan any time up until 30 days prior to year-end. The safe harbor election can even be made as late as the end of the next year if the plan sponsor provides for at least a 4% nonelective contribution.

Open Multiple Employer Plans (Open MEPs)

CurrentlyMultiple employer plans (MEPs) are legal and actually quite common, but a couple of limitations have stunted the development of a concept called open MEPs. An open MEP is a situation where the employers within the MEP are not tied together through a trade association or some common business relationship. In 2012 the DOL issued an Advisory Opinion provided that a MEP made up of unrelated employers that did not have “common nexus” must operate as a separate plan for each of these unrelated employers and not as a single common plan. This advisory opinion took away much of the perceived advantages of operating an open MEP. Additionally, the IRS has followed a policy that provides if one employer within the MEP makes a mistake, that the error can impact the qualified status of the entire plan; this is known as the “one bad apple” rule, this policy is clearly a negative selling point for any plan sponsor that might consider signing up to participate in a MEP.

Effective for Plan Years beginning after Dec. 31, 2020 – the “common nexus” requirement and the “one bad apple” rule are eliminated. The new open MEP rules provide for a designated “pooled plan provider” that would operate as the MEPs named fiduciary and the ERISA 3(16) plan administrator. The open MEP will be required to file a 5500 with aggregate account balances attributable to each employer. These changes are expected to create a market for pooled plans that will offer efficient retirement plan solutions to smaller plan sponsors.

Required Minimum Distribution Age Now 72

Currently Required Minimum Distribution from a qualified plan or IRA must begin in the year the participant turns 70 ½.

Effective for Distributions after 2019, with respect to individuals who attain 70 ½ after 2019. – This is a simple change to age 72 for computation purposes, but note the effective date means that if the participant is already subject to RMD rules in 2019 they remain subject to RMDs for 2020 even though the person may not be 72 yet. Also, plan sponsors should be aware that distributions made in 2020 to someone that will turn 70 ½ in 2020 will not be subject to RMD rules and therefore would be eligible for rollover and subject to the mandatory 20% withholding rules.

Increase Retirement Savings Access to Long-Term Part-Time Workers

Currently– Plans can exclude employees that do not meet the 1,000 hours of service requirement

Effective for Plan Years beginning after Dec. 31, 2020 – Plans will need to be amended to permit long-term part-time employees who work at least 500 hours over a 3 year period to enter the plan for the purpose of making retirement savings contributions. The employer may elect to exclude these employees from employer contributions, nondiscrimination, and top-heavy testing.

Stretch IRAs are Eliminated

Currently– If Retirement plan or IRA proceeds are passed upon death to a non-spouse beneficiary; the beneficiary can set up an inherited IRA and “stretch” out payments based upon the beneficiary’s life expectancy. Depending upon the age of the beneficiary and the size of the IRA this strategy potentially provided significant tax advantages.

Effective for distributions that occur as a result of deaths after 2019 – Distributions from the IRA or plan are generally going to need to be made within 10 years. There are exceptions if the beneficiary is (1) the surviving spouse, (2) disabled, (3) chronically ill, (4) not more than 10 years younger than the IRA owner or plan participant, or (5) for a child that has not reached the age of majority, the ten year rule would be delayed until the child became of age.

Increased Penalties for Failure to File Retirement Plan Returns and Other Notices

Current Penalty Structure:

Failure to file Form 5500$25 per day maximum of $15,000
Failure to report participant on Form 8955-SSA$1 per participant, per day maximum of $5,000
Failure to provide Special Tax Notice$10 per failure up to a maximum of $5,000

New penalty structure:

Failure to file Form 5500$250 per day maximum of $150,000
Failure to report participant on Form 8955-SSA$10 per participant, per day maximum of $50,000
Failure to provide Special Tax Notice$100 per failure up to a maximum of $50,000

Other Retirement Plan Changes Effective for Years Beginning After December 31, 2019

  • Phased retirement changes – defined Benefit Plans can be amended to provide voluntary in-service distributions begin at age 59 ½, down from the current age 62 requirement.
  • Start-up credits – the cap on tax credits that small employers (up to 100 employees) can get for starting up a new retirement plan has gone up from $500 to $5,000.
  • Auto-Enroll credits for small employers – small employers can get an additional $500 tax credit for adopting an automatic enrollment provision.
  • More time to adopt a plan – currently a qualified plan must be adopted by the end of the employer’s tax year to be effective for that year. The new rule will permit a plan to be adopted as late as the due date of the employer’s tax return for the year.
  • Plan annuity provisions – in recognition that defined contribution plans typically do not offer lifetime income streams two changes have been added to encourage in-plan annuity options.
    • A fiduciary safe harbor standard that if followed, would protect plan sponsors from potential liability relating to the selection of an annuity provider.
    • Plans may permit tax-advantaged portability of lifetime income annuity options from one plan to another.
  • 403(b) changes include providing a mechanism for the termination of a 403(b) custodial account and clarification that non-qualified church controlled organizations (e.g. hospitals and schools) can participate in Section 403(b)(9) retirement income accounts.
  • Penalty free distribution for birth or adoption expenses – up to $5,000 could be distributed from a defined contribution or 403(b) plan to cover costs relating to birth or adoption of a child.
  • Special tax penalty relief and income tax treatment for distributions for qualified disaster distributions from qualified plans up to $100,000.  Additionally, plan sponsors can permit the $50,000 participant loan limit to be increased to $100,000 with increased repayment periods for participants that suffered losses in a qualified disaster area.

Other Changes with a Delayed Effective Date

  • Lifetime income disclosure – this provision will require a defined contribution plan to provide all participants with an annual statement that discloses the projected lifetime income stream equivalent of the participant’s account balance.  This requirement will become effective for benefit statements furnished one year after applicable DOL guidance has been issued that will be necessary to provide the prescribed assumptions and explanations that will be used to create this disclosure.
  • Combining 5500 – IRS and DOL have been directed to permit a consolidation of Form 5500 reporting for similar plans. Defined contribution plans with the same trustee, same-named fiduciary and same plan administrator using the same plan year and same plan investments may be combined into one 5500 filing. This is scheduled to begin no later than January 1, 2022, for 2021 calendar plan year filings.

What to Do Now

Obviously the SECURE Act is bringing a lot of changes to retirement plans. Many of the operational aspects to this new retirement legislation will need to be implemented immediately, in particular, tax withholding related items that will change in 2020 will necessitate plan sponsors and their recordkeepers act immediately to review tax withholding and distribution processes. Plans do have until the end of the 2022 plan year to adopt conforming amendments to their documents. The amendment deadline is the 2024 plan year for governmental plans.

If you have any questions about the SECURE Act and this new retirement plan legislation we encourage you to contact the Findley consultant you normally work with, or contact John Lucas at 615.665.5329 or

Published December 23, 2019

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Is it Time to Restate Your Defined Benefit Pension Plan?

If you sponsor a frozen defined benefit pension plan, a mostly “vanilla” individually designed defined pension plan or a defined benefit pension plan already on a pre-approved format, you will want to think about restating your plan now in the most recent IRS pre-approved format. The restatement satisfies the need to update the plan for the Pension Protection Act of 2006 (“PPA”). This is true for traditional defined benefit plans, as well as cash balance plans. The deadline for the PPA pre-approved plan restatement is April 30, 2020.

Here are some reasons to consider restating your defined benefit plans using the IRS pre-approved PPA plan document formats:

Simplicity in Form

Because pre-approved plans are submitted for IRS approval prior to their adoption by a particular employer, they are set in form to a certain extent. Nevertheless, they still allow for provisions unique to each employer’s plan. A pre-approved plan provider will electronically input the unique provisions of your plan, and software systems generate the documents required for the plan. In this case, either the Adoption Agreement that is paired with a Base Plan Document (common for 401(k) plans) or pre-approved format that looks like an individually designed plan. The software generally also creates a summary plan description (SPD) and resolutions for the restated plan’s approval and adoption. As a reminder, SPDs must be amended and distributed every five years if the plan has been amended since the most recently issued SPD, and every ten years even if there have been no amendments.

IRS Approval

Under the revised determination letter program, a plan sponsor of a an individually designed defined benefit pension plan can no longer get IRS assurances on the qualified status of the plan document between its inception and termination, except under very limited circumstances. However, a pre-approved plan provider gets an IRS opinion letter on the pre-approved plan, and the adopting employer can generally rely on this letter. Moreover, the plan provider will get a new letter on the pre-approved plan every six years, the pre-approved plan restatement cycle, to reflect changes in the plan and changes in applicable statutes, regulations, and other guidance. If your plan is headed for termination, restatement on the IRS pre-approved plan format should reduce the time the IRS takes to review the document during the plan termination process.

Streamlined Services

If the plan provider you choose also administers your defined benefit pension plan and/or provides actuarial services, the pre-approved PPA defined benefit plan document will be very familiar to it. The plan provider will be able to point a plan administrator to applicable plan provisions for their consideration more quickly and more cost-effectively when the plan sponsor is looking for answers to its questions about plan administration.


Every six years or so the IRS will require restatement of the pre-approved defined benefit pension plan document and will issue a new opinion letter upon which an adopting employer can rely. This cycle’s amendment and restatement is generally referred to as the PPA restatement. The subsequent restatements on the revised pre-approved documents will be more cost-effective than drafting amendments to each individually designed plan for each required change since the provider will be inputting virtually the same information to generate the new restated documents. This is especially true for frozen defined benefit plans that will have little change.

Required Interim Amendments

If the IRS requires amendments to the pre-approved PPA defined plan documents that don’t require employer elections, they will be adopted by your plan provider for all adopting employers, and the adopting employer will be given a copy. Otherwise, the provider will issue a pre-approved amendment, with elections, that the adopting employer will complete and execute.

Not every defined benefit pension plan is going to fit into an IRS pre-approved PPA plan document format. The provider of your choice will need to look at your current plan documents to determine if this kind of restatement is possible. With the holidays between now and April 30, 2020, the time to consult with your trusted advisors is now. For those of you who sponsor defined contribution plans, the next pre-approved defined contribution plan restatement cycle is expected to be announced by the IRS at some point in 2020.

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

Published November 14, 2019

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Proposed E-Delivery Safe Harbor Recognizes Online Reality

On October 22, 2019, the DOL announced new guidance that should go a long way toward bringing the delivery of ERISA-required disclosures and notices into the 21st Century. It should also provide significant cost savings for plan sponsors. This e-delivery safe harbor will be in addition to the safe harbor issued by the Employee Benefits Security Administration in 2002.

The new safe harbor e-delivery option will permit plan administrators to notify participants electronically that information is available online. The notice must include:

  • a brief description of the document being posted online,
  • instructions on how to access the information,
  • information on how to receive paper versions of the information,
  • how to affirmatively opt out of electronic delivery, and
  • a telephone number to contact the plan administrator or other designated plan representative.

The proposed safe harbor includes standards for the website where disclosures will be posted and outlines system checks for invalid electronic addresses.

This safe harbor option eliminates the 2002 safe harbor requirement that participants must opt in to receive disclosures electronically outside of work email. The notice from the plan sponsor under the new guidance could be issued via work email, a plan sponsor-issued smartphone or a personal email address as supplied by the participant.

The DOL guidance seeks input on additional changes to the content, design, and delivery of ERISA-required disclosures.  Comments are due by November 22, 2019. A fact sheet on the proposed e-delivery safe harbor option is available here.

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

Published November 7, 2019

© 2019 Findley. All Rights Reserved.

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

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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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Reminders of What’s New for Plan Sponsors in 2019

Retirement and health and welfare plan sponsors have a relatively short list of employee benefit changes that begin on or around January 1, 2019. However, some changes were announced so long ago that they could be easily forgotten; here’s a refresher.

For Sponsors of Disability Welfare Plans and Retirement Plans that Provide Disability Benefits


New claims procedures regulations for disability benefits claims, after multiple delays, have finally been set. The Department of Labor (DOL) requires that the new procedures apply to disability claims that arise after April 1, 2018. The rules generally give disability benefit claimants the same level of procedural protections that group health benefit claimants have after the enactment of the Affordable Care Act (ACA). Its aim is to protect disability claimants from conflicts of interest; ensure claimants have an opportunity to respond to evidence and reasoning behind adverse determinations; and increase transparency in claims processing.

What Do Plan Sponsors Need to Do

For most plan sponsors, ERISA claims procedures are described in their summary plan descriptions. That means that the new disability benefit claims procedures require a summary of material modifications. Certain other plan sponsors will want to consider amending their plans to provide that the disability determination under their plan is made by a third party, such as the Social Security Administration or their long-term disability benefits insurer. Plan sponsors are advised to adopt any necessary amendments on or before the last day of the plan year that includes April 2, 2018. For calendar year plans, the amendment deadline is December 31, 2018.

For Sponsors of Retirement Plans

Hardship Withdrawals


Both the December 2017 Tax Cuts and Jobs Act (TCJA) and the February 2018 Bipartisan Budget Act (BBA) made important changes to hardship withdrawals, which can be provided in 401(k), 403(b), and 457(b) retirement plans. The TCJA change made hardship withdrawals more difficult to get for casualty losses, because the damage or loss must be attributable to a federally declared disaster. For more information see our article here. BBA changes generally make hardship withdrawals much more attractive and easier to administer by eliminating certain hurdles for plan participants.

What Changed for Plan Participants

Plan participants no longer need to take the maximum available loan under the plan before requesting a hardship withdrawal for plan years beginning in 2018 (January 1, 2018 for calendar years). Effective on the first day of the applicable plan year beginning in 2019 (January 1, 2019 for calendar year plans), BBA eliminated the rule requiring that employees who take a hardship distribution must cease making salary deferrals for six months. In addition, BBA created a new source of funds for hardship withdrawals— any interest earned on salary deferrals. These hardship withdrawal changes are described here.

What Do Plan Sponsors Need to Do

The TCJA change to hardship withdrawals is an administrative one that impacts internal procedures.  However, BBA changes to hardship withdrawals are likely to require a plan amendment to be adopted on or before the end of the 2019 plan year (December 31, 2019 for calendar year plans), and a summary of material modifications to be issued soon thereafter.

402(f) Special Tax Notices


On September 18, 2018, the Internal Revenue Service (IRS) issued updated model notices to satisfy the requirements of Internal Revenue Code (Code) Section 402(f). The modifications are the result of the TCJA, which extended the time within which a participant can roll over the amount of a plan loan offset to effect a tax-free rollover of the loan offset amount. The new extended period applies to accrued loan amounts that are offset from a participant’s account balance at either plan termination or the termination of employment. A detailed description of these changes and links to the new model notices can be found here.

Defined Benefit Plan Restatements

In March 2018, the IRS released Announcement 2018-15, stating that it intends to issue opinion and advisory letters for preapproved master and prototype (M&P) and volume submitter (VS) defined benefit plans that were restated for plan qualification requirements listed in the 2012 Cumulative List. An employer that wants to use a preapproved document to restate its defined benefit plan will be required to adopt the plan document on or before April 30, 2020.

403(b) Plan Restatements

The deadline to restate preapproved 403(b) M&P and VS plans is March 31, 2020, according to Revenue Procedure 2017-18. 403(b) plans can be sponsored by a tax-exempt 501(c)(3) organization (including a cooperative hospital service organization defined under Code Section 501(c)), a church or church-related organization, and a government entity (but only for its public school employees). For more detailed information, see our article here.

VCP Applications

On September 28, 2018, the IRS issued Revenue Procedure 2018-52, which provides that beginning April 1, 2019, the IRS will accept only electronic submissions to its Voluntary Compliance Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS). The new procedure modifies and supersedes Revenue Procedure 2016-51, which most recently set forth the EPCRS, a comprehensive system for correcting documentary and operational defects in qualified retirement plans. Revenue Procedure 2018-52 provides a 3-month transition period beginning January 1, 2019, during which the IRS will accept either paper or electronic VCP submissions.

2019 Plan Limits

In Notice 2018-83, the IRS issued the cost-of-living adjusted limits for tax-qualified plans. A number of these limits were increased from 2018 levels. For a detailed listing of these limits, see our article here.

For Sponsors of Health Plans

The IRS issued Revenue Procedure 2018-34 in May 2018, which sets the 2019 affordability threshold for the ACA employer mandate at 9.86 percent. Coverage is affordable only if the employee’s contribution or share of the premium for the lowest cost, self-only coverage for which he or she is eligible does not exceed a certain percentage of the employee’s household income (starting at 9.5 percent in 2014, and adjusted for inflation). See our detailed article here.

For Sponsors of High Deductible Health Plans (HDHPs)

In May 2018, the IRS announced in Revenue Procedure 2018-30 the 2019 limits for contributions to Health Savings Accounts (HSAs) and definitional limits for HDHPs. These inflation adjustments are provided for under applicable law. For a more detailed description of the increases, see our article here.

What Do Plan Sponsors Need to Do

Plan sponsors should review their employee benefit plans to determine if any of them are affected by the changes listed above.


Please contact the Findley consultant you regularly work with or Sheila Ninneman at or 216.875.1927.

Posted November 12, 2018

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