Robin Schachter Quoted by Human Resource Executive on DOL, IRS Retirement Plan Audits
Human Resource Executive, for its article “Preparing for a Retirement-Plan Audit,” quoted Akin Gump tax partner Robin Schachter on how companies can prepare for—and survive—a Department of Labor or Internal Revenue Service audit of their retirement plans.
Schachter, whose practice focuses on executive compensation, ERISA and employee benefits, said that government investigations are occurring with greater frequency: “Some IRS audits and DOL investigations are random, but more often they're initiated in response to a review or transaction, complaint or litigation, and some of those events may trigger an inquiry from the DOL or IRS. The IRS has been active in auditing retirement plans, but their resources have been constrained, and more recently I'm seeing more activity from the DOL.”
He added, however, that not all audits have a downside: “Sometimes a random audit is designed to measure compliance, and it usually becomes an educational process for the plan sponsor, even when they have no problems, because you get a sense of what the DOL is looking for and what kinds of records you have to keep.” In this regard, he stressed the importance of record-keeping and documentation of the fiduciary decision-making process.
In that regard, Schachter noted that employee stock-ownership plans or employer securities investment plans have been on Labor’s radar and said that employers should consider documenting all meetings in order to show “the process the administrators went through to monitor and valuate and choose investment and investment providers,” stressing the fiduciary’s legal responsibility to act prudently.
He continued in that vein, saying, “This isn't a result, it's a process. Sometimes fiduciaries don't always make the best choice, but that's not the standard, it's how they made that choice. Was it in a prudent manner, and if it was bad, did they take action to change and correct their decision? It's important to maintain documentation that shows the steps you went through to valuate and consider a fiduciary decision.”
Sounding a cautionary note regarding federal audits that reveal problems, Schachter said, “In situations where audits identify issues, oftentimes you have to be concerned about not just regulatory agencies but participant litigation as well. It's important to maintain compliance procedures to mitigate exposure and to avoid private litigation as well as regulatory action.”