Scared vs. Prepared: Conducting an Operational Compliance Review

FEBRUARY 9, 2022

Are you prepared for an audit? Are your compliance procedures up to date?

No one likes being audited by the Internal Revenue Service (IRS) or Department of Labor (DOL), but all qualified retirement plans (defined benefit and defined contribution) may be selected for an audit. Prudent retirement plan sponsors are proactive, have up-to-date procedures and guidelines, and periodically conduct an operational compliance review, or self-audit. Taking the initiative to do a self-review can help you avoid added costs and liabilities in the future.

USI Consulting Group (USICG) finds compliance issues in at least one-third of the plans we review.

Fortune Favors the Prepared

Start to finish, a self-audit takes six weeks to six months, depending on the size of the retirement plan, depth of review and findings. The review may be:

  • Broad — focused primarily on plan documents, annual filings and compliance testing
  • Detailed — structured to encompass everything from internal payroll processes to spot-checking select records or transactions from the recordkeeping system

In a recent case, after an acquisition, a company engaged USICG to independently validate retirement benefit calculations of plan participants who had grandfathered benefits from a merged plan. We established extensive testing criteria, pulled sample employee/participant data, and calculated benefits to obtain expected results pursuant to the provisions of the newly merged plan document. We identified specific transactions that had the potential to be handled incorrectly following the conversion of data and alterations to the existing programming after the acquisition.

Where incorrect calculations were identified, USICG assisted the client and its outside counsel to determine appropriate corrective action. Following the necessary corrections, our consultants validated a sampling of participants to ensure that the specific errors were corrected. USICG assisted the client and its outside counsel in submitting a Voluntary Correction Program filing to the IRS. A proactive, independent review of benefit calculations enabled this organization to mitigate their risk exposure by ensuring compliance with government regulations and the plan document.

This information is provided solely for educational purposes and is not to be construed as investment, legal or tax advice. Prior to acting on this information, we recommend that you seek independent advice specific to your situation from a qualified investment/legal/tax professional.