Can a DOL Benefits Audit Impact Small Employers?

Jun 18, 2018
| David Pearson
DOL Benefits Audit

Compliance continues to be a significant issue facing small and medium-sized employers. With new employment laws taking effect each year, and revisions to existing legislation also occurring frequently, small business owners can feel overwhelmed.

To avoid running into compliance problems, employers of all sizes need to keep up with the latest news and changes to HR-related laws.

An aspect of HR compliance that has become a greater focus, especially for the Department of Labor (DOL), are employee benefit audits. And one area in particular, summary plan descriptions (SPDs), are a common compliance issue.

But do small employers really have to worry about the DOL auditing them over their employee benefit plans and documentation?
 

A DOL Audit Can Happen to All Employers

In 1974, the Employee Retirement Income Security Act (ERISA) went into law and required that all retirement, health and welfare plans have summary plan descriptions (SPDs).

Any and all employers who offer employee benefit plans that are subject to ERISA must have an SPD, or they risk non-compliance.

Why does the Department of Labor conduct audits and investigations on smaller employers? They do this to ensure that documents and other plan materials comply with federal law.

One common misconception is that a benefits broker or carrier will take care of all necessary documentation to ensure compliance. However, this isn’t true.

While brokers can certainly help, they may not know the full offerings or eligibility guidelines, making it almost impossible to draft accurate documentation. The same goes for carriers, as the documents they provide generally need to be edited by each employer to make it company-specific.

In order to avoid any issues with the DOL, small employers must make sure they have accurate benefits documentation, which an HR compliance professional or expert can assist with creating.

If an employer gets audited and they lack the necessary benefits documentation, it is possible that the DOL will explore the company further and look for other problems, such as with retirement accounts and other employee benefits.
 

How Does the Department of Labor Find Out About Potential Compliance Issues?

The DOL’s Employee Benefits Security Administration (EBSA) has been in charge of investigation problems with plans, sponsors, and providers.

Usually, the DOL or the EBSA learn of potential compliance issues is via participant complaints. If these issues aren’t addressed and resolved, or if they reveal larger problems, then the DOL will look into the issue.

Additionally, the EBSA also gets leads from advocacy groups who report potential violations, and issues with Form 5500 can also lead to a DOL audit.

It is also possible for a company that has seen a lot of media coverage due to financial issues could also cause an investigation to occur.
 

What Documents May an Employer Need if they get Audited?

When an investigation has been deemed necessary, the DOL will send a letter to the employer that requests certain documents.

Some of the commonly requested documents include:
 
  • Plan documents
  • Summary plan descriptions (SPDs)
  • Certificates of coverage
  • Service provider documents
  • Premium contribution payment schedules
  • Financial documents
  • Employee handbooks
  • Form 5500
  • Documentation regarding all mandatory employee notices
  • Insurance contracts

Additionally, it is a best practice for employers to document minutes from all health plan meetings, as the DOL could request this information.

Once the documents have been sent to the DOL, the agency will schedule and conduct interviews with a few individuals who are familiar with the plan.
 

What Are the Consequences Associated with a DOL Benefit Audit?

If an employer is being audited, and has issues supplying required documentation or the documents aren’t compliant, then the DOL can impose penalties. These penalties usually take the form of monetary fines, which can be severe (especially for smaller employers).

The fines can range anywhere from $100 to $200 per day, per person, and per violation. The severity of the fine can depend on a few factors, such as if a participant is covered by a family contract.

Additionally, most fines under the Affordable Care Act are not tax-deductible, including those for employee benefits and SPD violations.

The financial and business impacts these fines could have are reasons why all employers should ensure their benefit plans, documents, and procedures are complaint with all the latest laws and regulations.

Smaller employers who aren’t sure how to create the necessary documents can consult with an HR compliance expert for assistance.
 

Even Small Employers Can Get Audited by the DOL for Their Employee Benefits

It is critical for small employers to know that they can be audited by the DOL for employee benefits and/or SPDs, as well as many other labor-related issues.

The penalties associated with non-compliance, in the form of monetary fines, can add up quickly, and cause serious issues for small employers.

Small employers must ensure that all employee benefit documents and procedures are compliant with current HR laws. It is also critical to ensure these documents are reviewed and updated routinely, especially if law changes take place.

Working with a broker or HR compliance expert can help to prevent a DOL audit from occurring. By being prepared and compliant, small employers have significantly less to worry about from the DOL.

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