DOL Investigations: Establishing a Standard to Go By


“We’re establishing a standard for you to go by.” That is how J.K. Nowiejski of Nova 401(k) Associates characterized the Department of Labor’s (DOL) approach in auditing and investigating retirement plans. He was joined by Drinker Biddle Reath LLP Partner Heather Abrigo in addressing trends in government audits and investigations in an Oct. 25 session at the ASPPA Annual Conference held at National Harbor, MD.

Abrigo and Nowiejski made it abundantly clear that the DOL means business regarding retirement plans’ compliance with applicable law and regulation. Figures they shared from the DOL’s Employee Benefits Security Administration (EBSA) 2016 enforcement activities offer a snapshot:

  • oversight was extended to 681,000 retirement plans;
  • more than $777 million was recovered for direct payment to plans, participants and beneficiaries;
  • more than 2,000 civil cases were closed;
  • 333 criminal investigations were closed;
  • 62 federal lawsuits were filed; and
  • there were 96 indictments.

The DOL “is sometimes flabbergasted” that people don’t understand the rules, said Abrigo, who noted that the DOL “is definitely targeting retirement plans.” That includes their named fiduciaries, functional fiduciaries, plan administrators and service providers. And they haven’t forgotten plan sponsors and plan trustees; Abrigo added that the DOL is especially interested in them regarding their fiduciary responsibilities.

DOL investigations, said Nowiejski, are never random. “The DOL always has a reason,” he said. And while they can come as result of action by employees and participants, enforcement projects, referrals or reviews of Forms 5500, they can also result from information gleaned from other sources — including social media and even local newspapers, from which information can be found concerning notices of bankruptcy.

Nowiejski said that there are red flags that can heighten the chances of being investigated; for instance, fees that look high and that are not explained to the DOL’s liking, which he said will result in DOL attention “every time,” and assets that are hard to value.

“How you respond and what you say is very important,” said Abrigo, adding that being glib or flippant can result in agents coming to investigate. Nowiejski agreed, noting that how one answers a “yes” or “no” question and responses that are equivocal regarding who made a mistake in plan administration or compliance also can draw the DOL’s attention.

But comments and responses by plan professionals, administrators and service providers say are not all that matters, they cautioned. Nowiejski said that investigators and can even glean information from conversations conducted in an employer’s break rooms. In addition, Abrigo observed, “you never know what exactly what your client will say.”

There are steps an employer, plan sponsor and service provider can take to head off potential trouble from such inadvertent communication. Nowiejski suggested that it may be useful to tell employees to be aware when investigators are onsite, and that arranging meetings offsite may be an option to consider. Abrigo said that it helps to meet with one’s clients before they meet with the DOL as part of the process of preparing for an investigation.

But most important, Abrigo said, “The truth is always your best defense.”


By John Iekel

October 27, 2017

Special disaster-related rules for use of retirement funds-until December 31, 2018

  • The 10% penalty on early withdrawals from retirement plans for individuals who have a principal residence in the disaster relief area and suffered economic loss would be waived. The aggregate amount of distributions received by any individual is limited to $100,000, less prior withdrawals for disaster relief. Individuals would be permitted three years to repay the distribution, and those who do not restore that distribution would be permitted to pay the resulting tax burden ratably over three years.
  • Individuals who took a hardship distribution from a plan or withdrawal from an IRA for a first-time home purchase in the disaster area and whose transaction was terminated due to the hurricane would be permitted to recontribute the amount withdrawn to a plan or IRA without penalties.
  • Retirement plan loan limits would be increased to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan (basically doubling current loan limits). If the participant had another plan loan in the last 12 month period, the $100,000 maximum will be limited by the outstanding loan balance in the preceding 12-month period.
  • Retirement plan loan repayment periods would be extended to purchase or repair homes damaged in the hurricane relief area.
  • Individuals unable to repay loans could pay the income tax associated with a loan default over three years rather than the full amount in the year of default.
  • Individuals who previously borrowed from their plan and have a repayment due during the months following the hurricane could delay their loan repayment up to one year.

Funding and AFTAP Relief for Hurricane Harvey and Hurricane Irma

In IRS Notice 2017-49, the IRS issued additional relief for defined benefit plans affected by Hurricane Harvey and Hurricane Irma.  If a plan qualifies the minimum funding deadline and the AFTAP deadline is extended to January 31, 2018.  To qualify a plan, must be an Affected Plan in an Affected Area.

An Affected Area is a county or other area that FEMA designates eligible for individual assistance in connection with Hurricane Harvey or Hurricane Irma.

To be an Affected Plan, one or more of the following must be located in an Affected Area:

  • For single employer plans, principal place of business of the employer
  • Principal place of business for the employers who employees at least 50% of the active participants
  • Officer of the plan or plan administrator
  • Office of the primary record keeper
  • Office of the enrolled actuary

If a plan qualifies an Affected Plan, the minimum funding and quarterly funding deadlines are extended to January 31, 2018.  Additionally, the AFTAP deadline and AFTAP election deadlines are moved to January 31, 2018.

This is in addition to the other relief provided by the IRS and PBGC.

Irma Relief for 401(k) contributions and loan repayments

The Department of Labor (DOL)  recognizes that some employers and service providers acting on the employer’s behalf, such as payroll processing services, located in identified covered disaster areas will not be able to forward participant payments and withholdings to employee retirement benefit plans within the prescribed timeframe. In such instances, the DOL will not – solely on the basis of a failure attributable to Hurricane Irma – seek to enforce the provisions of Title I with respect to a temporary delay in the forwarding of such payments or contributions to an employee pension benefit plan to the extent that affected employers, and service providers, act reasonably, prudently and in the interest of employees to comply as soon as practical under the circumstances.

Nova 401(k) Associates encourages clients to use this relief cautiously.  We are appreciative of the DOL relief, but clients need to understand that timely deposits of 401(k) contributions and loan repayments is an enforcement priority for the DOL.  Please deposit your 401(k) contributions and loan repayments as soon as practical after Hurricane Irma.  We suggest that you resume your regular deposit schedule for 401(k) contributions and loan repayments at the same time you resume your regular schedule for payroll tax withholdings.  If that is not possible, document why in the event it comes up on a CPA or DOL audit.

Hurricane Irma Resources

Participant notice relief

The deadlines for certain participant notices have been extended due to Hurricane Irma.  This is identical to the relief issued for Hurricane Harvey.

Blackout notices – In general there is a requirement that blackout notices be provided 30 days in advance.  The existing blackout rules provide an exception when circumstances beyond the control of the plan administrator cause the delay.  For this exception to apply, there usually would need to be a written determination.  With respect to blackout periods related to Hurricane Irma, the Department of Labor will not allege a violation of the blackout notice requirements solely on the basis that a fiduciary did not make the required written determination.

Summary Annual Reports – Summary Annual Reports (SARs) are due two months after the deadline for the Form 5500.  Thus, the deadline for SARs is extended when the Form 5500 deadline is extended.  For plans entitled to a Form 5500 extension to January 31, 2018, the SAR deadline is extended until March 31, 2018.  However, Nova suggests that the SAR be distributed shortly after the Form 5500 is filed unless it is being held up to be bundled with other notices.  This will prevent this deadline being inadvertently overlooked.  We suggest plan sponsors document the date and method of SAR distribution.

Annual Funding Notices (AFN) – For small plans, the AFN is due the earlier of the fully extended deadline or when the Form 5500 is filed.  Thus, the deadline for the AFN is extended when the Form 5500 deadline is extended.  For plans entitled to a Form 5500 extension to January 31, 2018, the AFN deadline is extended until the earlier of when the Form 5500 is filed or January 31, 2018.  We suggest plan sponsors document the date and method of AFN distribution.

Hurricane Irma Resources

Hurricane Harvey Resources

Hardship distribution relief for participants

The IRS has issued relief to make it is easier for participants to take hardship distributions from 401(k) plans.   The IRS has relaxed certain documentation requirements, but has not totally eliminated the need for documentation.  Irma relief is only available through January 31, 2018.


Things that participants need to know:

  • In order to take a hardship distribution, your employer’s plan must allow for hardship distribution.  Plans are not required to permit hardship distributions.  You can find out if your plan allows hardship distributions by talking to the plan administrator or checking your plan’s Summary Plan Description.  If you want a hardship distribution and your 401(k) plan does not allow for hardship distributions, ask your employer to amend the plan to allow hardship distributions.  Defined benefit plans and cash balance plans cannot provide hardship distributions.
  • If you are eligible for a 401(k) plan loan, you may be required to take a loan before taking a hardship distribution.  Sometimes this requirement is waived if you certify that taking a loan would increase your financial hardship.  But, keep in mind, a 401(k) plan loan is not taxable as long as you repay it on time.  So, it may be a better strategy to first take available loans and then take a hardship distribution.
  • Your entire 401(k) account may not be available for withdrawal under the law or terms of your plan.  For example, sometimes the 401(k) plan provides that only employee contributions are eligible for hardship withdrawals, but not any employer contributions.
  • Hardship distributions are taxable distributions.  Your hardship distribution will be subject to income tax and you will receive a 1099-R reporting the taxable amount next year.  If you withdraw Roth money, it is not subject to double taxation.  But, pre-tax money such as your pre-tax 401(k) contributions will be taxed.  If your plan allows hardship withdrawals from employer contributions, those amounts are taxable.  Usually 10% of the tax amount is withheld unless you request another amount to be withheld for taxes.  Your actual taxes due when you file your final return may be higher or lower.
  • Participants under the age of 59 1/2 will generally be subject to the 10% additional withdrawal tax.  The 10% withdrawal tax does not apply to Roth money.
  • Your 401(k) plan is not required to apply the IRS-issued Irma relief.  If your employer is not applying the relief and you want them to, ask them to apply the relief.  If they are unwilling to do so, look at the typical hardship distribution rules.  We are early in the process, but well in excess of 90% of the hardship distributions that we are seeing related to Hurricane Irma would qualify as a typical hardship distribution.  For example, two typical hardship distribution reasons are to repair your home due to storms (called a casualty loss) or to prevent eviction or foreclosure from your primary residence.
  • If your employer is applying the Irma hardship distribution reasons, you may be able to apply for a hardship distribution for a wide variety of reasons related to Irma:  temporary shelter, flooded cars, etc.
  • Employers are implementing the Irma hardship distribution relief in different ways.  At a minimum, you will probably be asked to sign a certification stating that you have a financial need and that your need meets certain criteria.  You may be asked to provide documentation to support the amount you are requesting.  For example, if your home was flooded and you need to clean it out and repair it, you may be asked for bids or estimates to repair your home.  Because different employers and 401(k) providers are implementing the guidance in different ways, it is probably fastest to have documentation ready if you can reasonably do so.  If you cannot reasonably provide documentation, talk to your employer or 401(k) provider about signing a certification or providing alternate documentation.
  • Usually there is a requirement for your employer to stop your 401(k) contributions for 6 months following a hardship distribution.  However, your employer may choose not to enforce this rule with Irma hardship distributions.
  • Your plan or 401(k) provider, may charge a fee for the hardship distribution.  There are legitimate costs and work associated with processing these distributions.  But, inquire about the fee, particularly if you have other ways to get the necessary funds so that you can make an informed decision.  The fee is generally unrelated to the size of the distribution.  So, for a hardship distribution of $1,000 or $2,000, the fee may seem disproportionately large.
  • If possible have the proceeds ACHed or wired to you instead of a paper check.  In general, participants are surprised by how long it takes a check to travel across country.  And, this is truer when the mail is slowed down due to storms.

Hurricane Irma Resources

Irma Form 5500 Relief

The Form 5500 deadline has been extended to January 31, 2018 for Forms 5500, Forms 5500-SF and Forms 5500-EZ that would have been due between September 4, 2017 and January 31, 2018.  This automatically extends the deadline for Summary Annual Reports and small defined benefit plan Annual Funding Notices.

In order to qualify for relief, the employer must be an affected individual.

Nova 401(k) Associates is currently available to work with employers and auditors to minimize delays beyond the original Form 5500 deadline.  While some of our clients will need a lengthy extension due to Hurricane Irma, some of our clients will only require a short extension.  For those clients and auditors who are ready to work on the Form 5500, we are ready to assist you now so that you do not have to worry about this during the holiday season or busy month of January 2018!

Hurricane Irma Resources

Administrative Relief on Loans and Hardship Distributions

The IRS has provided employers with some administrative relief to make it easier to offer loans and hardship distributions.

Delayed amendments – The IRS will allow plans that do not offer loans and hardship distributions to administratively adopt those provisions and then amend the plan no later than the end of the first plan starting after December 31, 2017.  So, for a calendar plan year, this would be December 31, 2018.  While we appreciate this relief, we recommend that plan sponsors promptly amend their plans for added provisions, preferably before permitting these distributions.  Nova is available now to assist with plan amendments and updated SPDs.  Delaying the amendment could lead to a situation where the amendment is not actually adopted or where the eventual amendment does not match what was done.  Either of these could problems with a CPA, IRS or DOL audit.  Nova is waiving amendment fees for plan sponsors who add these provisions.

Delayed documentation  – The IRS is allowing the employer to delay collecting some documentation for loans and hardship distributions.  An example of the documentation that may be delayed is obtaining spousal consent if spousal consent is required.  If it is practical to do so, we urge employers to collect all documentation before processing a loan and distribution.  Nova has found that it is impractical to collect documentation after the fact.  First, employers move on and forget to get the documentation.  Second, employees quit and it is very difficult to get the documentation once they no longer work for you.  Unless it is a real hardship for the participant, we suggest getting all signatures and documentation upfront.  If it is absolutely necessary to process a transaction without the documentation, make sure to put a tickler on your calendar.

Relaxed documentation and reasons for hardship distributions – The IRS is relaxing documentation requirements on Irma hardship distributions and is allowing participants to receive hardship distributions for just about any reason related to Hurricane Irma.  Most hardship distribution requests we have seen thus far would qualify under the old hardship distributions and the employee was able to provide documentation for the request.  So, this relief is often not necessary.  Within the 401(k) community there is disagreement about what the relief on the hardship documentation means.  Does it mean that participants do not have to provide any documentation or that participants ultimately have to provide documentation but not before receiving the distribution?

At a minimum, plan sponsors should collect a certification from the participant regarding their need.  Nova suggests that plan sponsors collect whatever documentation is available prior to issuing the hardship distribution to avoid future issues.   However, Nova is comfortable with relaxed standards with respect to the supplied documentation.  For example, if a participant signs the need certification, provides pictures of their flooded home and requests $3,000 in a hardship distribution (because that is all they have in their account), we believe the documentation is sufficient.  The pictures document the need and the amount is less than the typical cost of clean-up and repairs.  We would not suggest requiring formal contractor estimates, a contract or estimate.  Additionally, we would rely on the need certification and not require proof of no insurance or FEMA benefits.  Given the amount requested, even if a participant had insurance or receives FEMA aid, they are likely to have at least $3,000 in unreimbursed expenses.  If on the other hand, the requested hardship amount were $100,000, we would suggest trying to obtain additional documentation perhaps in the form of bids or at least an employee’s written estimate of the cost with the major elements detailed.

We suggest a common sense approach of striking a balance between getting as much documentation as reasonably possible and working with participants to process the distributions as soon as possible.  If the documentation that is typically required is not available, get creative and work with the participant to get something that will document the file, but is not burdensome for them.  Also, be in touch with Nova and the plan’s recordkeeper to understand if the plan’s recordkeeper is imposing the standard of collecting documentation later.

No suspension of 401(k) deferrals – Generally when a participant takes a hardship distribution, there is a requirement that their 401(k) contributions to the plan be stopped for six months.  For Irma hardship distributions, there is not a requirement to apply this rule.  While this sounds like a nice idea, it is a bit of an administrative quagmire.  How can you tell which hardship distributions are Irma hardship distributions and which are not?  Do your processes automatically stop 401(k) deferrals and how to do you stop those processes?  Does the employee want the deferrals to stop?  Nova suggests that regular hardship distribution requests be processed as regular hardship distributions unless the participant signs a “Irma Hardship Certification” form and that the form have a box for the employee to check whether or not they want their 401(k) deferrals stopped.  This will draw a clear line between regular hardships and Irma hardships which will make it easier for employers to explain to any auditor in the future what was done.  This will also minimize the number of Irma hardships to the lowest possible number.

Please contact us or your ERISA attorney with questions on the above.

Hurricane Irma Resources

Irma Employer Contributions

In FL-2017-04, the IRS extended the filing deadline to January 31, 2018 for income tax returns due between September 4, 2017 and January 31, 2018.  Deadlines for certain employer contributions to retirement plans key off of fully extended tax filing deadlines.  Thus, when the fully extended tax filing deadline is delayed, the employer contribution deadline is also generally extended.  It is important to use great care if planning to take advantage of this aspect of the Irma Relief because not all employer contribution deadlines are extended.  

  • Discretionary profit sharing and discretionary matching contributions are extended to January 31, 2018.
  • The deadline for employer SIMPLE IRA and SEP IRA contributions is extended to January 31, 2018.
  • QNEC and QMAC deadlines to correct a failing ADP or ACP test are extended to January 31, 2018.  Rev. Proc. 2007-56 provides that for qualification purposes the deadline for correcting a failed ADP/ACP test can be extended.  The deadline for contributing QNECs and QMACs is generally the end of the plan year following the applicable plan plan year.  So, for 2016 calendar plan years, the deadline would generally be December 31, 2017.  This deadline is extended to January 31, 2018.
  • Minimum required contribution to defined benefit plans and cash balance plans are extended to January 31, 2018.
  • Similarly the quarterly contribution deadlines for defined benefit plans and cash balance plans are extended to January 31, 2018.
  • The safe harbor contribution deadline is not extended for qualification purposes.  However, the Irma extension may provide some additional flexibility in deducting safe harbor contributions made September 15, 2017 – December 31, 2017 for the 2016 tax  year.  Safe harbor contributions are due the last day of the plan year following the plan year to which it applies.  So, for 2016 calendar plan years, these employer contributions are due no later than December 31, 2017 for qualification purposes and this deadline has not been extended.  To be deducted for the 2016 tax year, safe harbor 401(k) contributions must be made by the employer’s fully extended tax filing deadline.  Thus, if an employer’s tax return was properly extended on September 4, 2017, the deduction deadline has effectively been extended to December 31, 2017 as well.

To take advantages of the Irma extension, the tax payer generally must have been under a valid extension as of September 4, 2017.  Additionally, the tax payer must have qualified as an “affected” individual.

This post was updated September 19, 2017 to reflect IRS Notice 2017-49 which extended certain defined benefit deadlines.

Hurricane Irma Resources

No Irma Relief for Certain Deadlines

The IRS, DOL and PBGC promptly issued Irma relief on many topics.  However, there are some items for which no relief was granted.


  • There is no relief from the 10% early withdrawal tax for hardship distributions from 401(k) plans.  Thus, if a participant takes a hardship distribution and is under the age of 59 1/2, the participant is generally going to owe both income tax and the 10% early withdrawal tax.
  • The maximum plan loan amount was not increased.  The maximum loan amount is generally the lesser of $50,000 and 50% of the vested account balance.
  • The loan repayment period was not increased.  The loan repayment period is generally 5 years.  However, there is some relief with respect to extending the grace period on existing loans.

DC Plans

  • New safe harbor plans still must be at least three months long.  Thus, for the 2017 calendar year, new safe harbor plans still must be implemented by October 1, 2017.  401(k) deferrals needs to start promptly after the plan’s effective date.
  • The deadline for a money purchase plan is 8 1/2 months after the end of the plan year.  Thus, for 2016 plan years, the contribution deadline for money purchase plan is September 15, 2017.
  • For calendar year plans, the deadline for 11g amendments was not delayed from October 15, 2017.
  • For qualification purposes, the deadline for safe harbor 401(k) contributions was not delayed.  For deduction purposes, there may be an extension.

DB and Cash Balance Plans

  • For calendar year plans, the deadline for 11g amendments was not delayed from October 15, 2017.

This post was updated September 19, 2017 to reflect IRS Notice 2017-49 which extended certain defined benefit and cash balance plan deadlines.

Hurricane Irma Resources