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Plan compliance reviews: What are they, and why are they important?
By Douglas Neville on May 10, 2016 at 9:12 AM

Employee benefit plans and executive compensation arrangements are subject to a staggering amount of regulation. The laws, regulations and other guidance regarding these plans and arrangements are complex and often confusing. Audits and enforcement actions by governmental agencies against plan sponsors and fiduciaries — as well as class-action lawsuits by plan participants — have become increasingly common in recent years.

When a plan is out of compliance with legal requirements, however small the error, the plan sponsor and/or plan fiduciaries can be required to pay losses incurred by the plan, interest and penalties. Depending on the errors, these amounts can easily reach hundreds of thousands (or even millions) of dollars, even for relatively small plans.

The situation seems pretty discouraging, right? Not really. A well-designed benefits program with good documentation, solid operational procedures and plenty of checks and balances goes a long way in avoiding problems. Couple that with regular, periodic compliance reviews by plan counsel and the risk of compliance problems (and unnecessary expense) can be significantly reduced.

A plan compliance review is a process in which a plan sponsor reviews the design and administrative operation of a plan in an effort to identify any issues or errors that could create risk for the sponsor and/or plan fiduciaries. The goal of the review is to identify and self-correct problems before they become larger and more costly — and before a governmental agency or plaintiff brings claims in connection with the situation.

A Q&A with more information about compliance reviews can be found here.

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