Most business owners never expect a Department of Labor 401k investigation, until a letter arrives and the questions start piling up. Whether you’re searching why does the Department of Labor audit 401k plans or what triggers a Department of Labor 401k investigation, the reality is that many reviews begin with common, avoidable mistakes that employers don’t realize put their plan at risk.
Understanding what triggers a Department of Labor (DOL) 401k audit is the first step toward protecting your business and your employees. From late contribution deposits to Form 5500 errors, this article explains the red flags the Department of Labor tends to look for and how working with an experienced CPA firm can help keep your 401(k) plan compliant and audit-ready.
What Triggers a DOL Investigation of Your 401(k) Plan?
A Department of Labor (DOL) investigation can create significant stress for employers, plan sponsors, and fiduciaries. Understanding what triggers an audit can help you avoid costly penalties and keep your 401(k) plan in full compliance. While some investigations occur randomly, most are prompted by specific red flags.
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A Department of Labor investigation: Top Triggers
1. Late or Inconsistent Remittance of Employee Contributions
One of the most common triggers is late deposits of employee deferrals. The DOL expects contributions to be deposited as soon as reasonably possible, often within a few business days. Repeated delays or inconsistencies between payroll dates and deposit dates are a major red flag.
2. Errors on Form 5500
Form 5500 is the DOL’s primary oversight tool. Missing information, incorrect participant counts, late filings, or mismatched data can all lead to further investigation. Failing to include an audit when required (100+ eligible participants) is another frequent trigger.
3. Participant Complaints
Any complaint filed by a plan participant—whether it concerns missing contributions, improper loans, poor communication, or alleged misuse of funds—can initiate a formal inquiry. The DOL takes participant concerns seriously, even if the issue appears small.
4. Operational Failures or Prohibited Transactions
The DOL routinely investigates plans that show signs of:
Improper loan administration
Incorrect eligibility or matching calculations
Failure to follow the plan document
Late or unreported distributions
Potential misuse or commingling of plan assets
These errors often surface during routine plan audits or through Form 5500 data.
5. Incomplete or Poorly Performed 401(k) Audits
For plans requiring an annual ERISA audit, the quality of the audit matters. If the CPA firm’s report appears incomplete, noncompliant, or indicates material weaknesses, the DOL may follow up directly with the plan sponsor.6. Significant Investment Losses
Abnormal or unexplained losses in participant accounts—especially if tied to improper investment practices or lack of monitoring—can prompt a review of fiduciary processes.
How to Reduce the Risk of a DOL Investigation
[x] The best protection is strong compliance and documentation. Employers can minimize risk by:
[x] Making contributions promptly
[x] Maintaining accurate payroll and plan records
[x] Reviewing Form 5500 carefully
[x] Conducting periodic internal compliance checks
and of course having a CPA with Audit Expertise in your corner like Rojas & Associates!
Working with a qualified CPA firm for the annual 401(k) audit is important to staying
proactive. This not only reduces the likelihood of a DOL investigation but also strengthens fiduciary oversight and protects participants.
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