Several governmental agencies, including the Internal Revenue Service (IRS), Department of Labor (DOL), Securities and Exchange Commission (SEC) and Department of Health and Human Services (HHS), have stepped up their audit and examination activities in a number of areas related to employee benefits and executive compensation. Clients are receiving audit letters from IRS, DOL and HHS for their qualified retirement plan and group health plans with increasing frequency. The IRS has embarked on various "compliance" projects, such as the "compliance questionnaire checklist" project recently completed on Internal Revenue Code Section 401(k) plans, and a recently announced compliance initiative related to Code Section 457(b) plans sponsored by non-governmental entities. Even though the compliance questionnaires are not considered an official "examination," plan sponsors are cautioned to respond carefully to avoid a full examination or a plan disqualification event.
In an effort to assist plan sponsors in understanding the targeted areas of focus, self-assessing potential "risk" areas and taking proactive steps, we will be including periodic articles in the Benefits Broadcast on selected audit topics. We will cover the types of plans that may be subject to audit or examination (including defined contribution plans, welfare plans, executive compensation arrangements and other non-qualified plans), the key areas of focus of the audits and examinations (including compliance with HIPAA and COBRA), common noncompliance issues and the potential penalties if deficiencies are not timely corrected. We will also explore the various methods of self-correction and correction by application offered by the various government agencies. Making sure that your employee benefit and compensation plans are in good order is not only important, but can also reduce the chance for expensive "surprises" if noncompliant processes or issues are found on audit.