Employee benefit plans come with complex regulatory requirements, and compliance missteps, even unintentional ones, can attract scrutiny from the Department of Labor (DOL) or the IRS. Many investigations begin with what appear to be routine administrative errors, but if those issues suggest weak oversight, fiduciary breaches, or misuse of plan assets, they can quickly escalate into formal enforcement actions. Understanding the most common investigation triggers allows plan sponsors to proactively address risk areas, strengthen internal controls and demonstrate prudent fiduciary oversight.

Why It Matters

Investigations can be time-consuming, costly, and disruptive. Beyond potential penalties and corrective actions, investigations often uncover deeper operational weaknesses and can erode participant trust. By understanding what the DOL and IRS regulators focus on (and addressing those areas proactively) plan sponsors can reduce compliance exposure, protect plan participants, and maintain the integrity of their retirement programs.

Common issues that trigger DOL or IRS investigations

1. Excessive or incorrect payments to service providers- The DOL closely monitors whether plan sponsors are paying reasonable fees for services received. Red flags arise when plans are overcharged, pay for services not actually provided, or miscalculate fees. Failure to properly review and document fee reasonableness can signal weak fiduciary oversight.
2. Late deposits or remittances- Late remittance of employee contributions, particularly 401(k) salary deferrals, is one of the most common compliance violations. Contributions must be deposited as soon as administratively possible. Repeated delays or long gaps between payroll and deposit dates may indicate poor internal controls or potential misuse of employee funds, prompting them to take a closer look.
3. Late or incomplete filing of the Form 5500- Late or inaccurate Form 5500 filings often result in significant penalties are a major  red flag for both the DOL and IRS. The Form 5500 is essentially the government’s primary tool for monitoring the financial health and operations of an employee benefit plan. Missed  deadline or incomplete filings can suggest broader Employee Retirement Income Security Act of 1974 (ERISA) compliance issues.
4. Participant or employee complaints about the benefit plan- Participant complaints, whether about fees, benefit calculations, or lack of communication, frequently trigger DOL inquiries. Even a single complaint can lead to an investigation, and patterns of unresolved issues often expose deeper fiduciary or operational deficiencies.
5. Alternative investments in the plan-  Plans that invest in non-traditional assets such as private equity, real estate, limited partnerships, or other hard-to-value securities face heightened scrutiny. These investments raise concerns around valuation, liquidity, conflicts of interest, and fiduciary due diligence. Regulators often review whether fiduciaries performed and documented adequate analysis before approving such investments.
6. Prohibited transactions- ERISA strictly forbids certain transactions between the plan and employer or service providers (“parties in interest”). Transactions such as loans to related parties, improper use of plan assets, or purchasing property from disqualified individuals almost always trigger immediate DOL or IRS review.

Top tips for remaining ERISA-compliant

Staying compliant with ERISA doesn’t just reduce audit risk, it ensures your plan is being operated solely in the best interest of participants. Here are practical steps plan sponsors can take:

• Strengthen internal controls and documentation- Maintain clear written procedures for handling contributions, approving transactions, monitoring fees, and communicating with participants. Regulators look for consistent processes and documentation that demonstrate active fiduciary oversight.
• Conduct regular fiduciary reviews- ERISA requires fiduciaries to act prudently and solely in participants’ best interests. Periodic reviews of investment performance, fee reasonableness, plan operations, and service provider oversight help demonstrate active, responsible governance.
• Monitor and benchmark service provider fees- Review fee disclosures annually, compare them to industry benchmarks, and document the rationale for retaining providers. Unreasonable or unclear fees are a frequent ERISA red flags.
• Ensure timely and accurate deposits- Establish procedures to remit employee contributions as soon as administratively possible and test them regularly. Even small deposit delays can trigger enforcement actions if they appear systemic.
• Keep plan documents and operations aligned- Plans must operate exactly as written. Review plan documents annually, adopt amendments timely, and confirm that day-to-day administration aligns with plan terms.

What to Expect During a DOL or IRS Audit

If your employee benefit plan is selected for a DOL or IRS audit, you will receive a written request for plan documents and records. The auditor reviews the materials, ask follow-up questions, and may interview plan fiduciaries. At the conclusion of the audit, findings are issued and may require corrective actions or penalties. Prompt, cooperative responses and support from experienced ERISA advisors, can help minimize disruptions and resolve issues efficiently.