Retirement Plan Compliance: IRS Tax Rules vs. DOL Oversight

Feb 27, 2026

Sponsoring an employee retirement plan comes with responsibilities to both the Internal Revenue Service (IRS) and the Department of Labor (DOL). The IRS role in retirement plan sponsorship focuses primarily on tax qualification, while the DOL focuses on fiduciary conduct and participant protections. With the IRS acting as the technical auditor—ensuring your plan document is airtight and your math aligns with the Internal Revenue Code—the DOL serves as the plan’s ethical watchdog, prioritizing the safety of employee assets. For retirement plan sponsors, success requires both maintaining the “qualified” status that enables tax advantages and upholding the fiduciary standards that protect the savings of employees. Read on for pointers about exactly what the IRS expects from you, and how those requirements intersect with the DOL’s expectations of you as a fiduciary.

Key Differences: Tax Compliance vs Fiduciary Oversight

Retirement plan sponsors must ensure alignment with IRS guidelines to protect both

valuable tax deductions for the company and the tax-deferred growth of savings of employees. By ensuring that retirement plans adhere to the “math and mechanics” of the Internal Revenue Code, the IRS acts as the primary gatekeeper for the tax-favored status of the company retirement plan. The IRS role is to ensure the plan remains “qualified,” meaning it must be operated strictly according to the written terms of the plan document, and meet the standards for nondiscrimination and contribution limits. Essentially, the IRS monitors the plan to ensure it serves a broad range of employees rather than just business owners or high earners, while also overseeing the proper reporting of plan activity and the taxation of distributions.

The IRS emphasizes that although establishing a retirement plan is a business decision, implementing that decision entails fiduciary responsibilities which can never be completing eliminated, even by hiring others:

…The decisions to establish a plan, include certain features, amend or terminate a plan are business decisions. When making these decisions, you are acting for your business, not the plan, and therefore, you wouldn’t be a fiduciary. However, when you take steps to implement these decisions, you (or those you hire) are acting for the plan as a fiduciary…. Be aware that hiring someone to perform fiduciary functions is itself a fiduciary act…. Fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. A fiduciary’s responsibilities include:

acting solely in the interest of the participants and their beneficiaries.
acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan.
carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters.
following the plan documents; and
diversifying plan investments.

While the IRS focuses on the “math” of the tax code, the Department of Labor (DOL) acts as the primary guardian of the plan’s “conduct and people.” Their role is to enforce the standards set by the Employee Retirement Income Security Act (ERISA), ensuring that plan sponsors and other fiduciaries act with the highest level of care, prudence, and loyalty toward employees. Essentially, the DOL is interested in whether plan sponsors are managing the plan’s assets responsibly, disclosing essential information to participants through clear communications, ensuring that all plan expenses are reasonable, and mitigating cybersecurity threats. By providing oversight on everything from the speed of payroll deposits to the quality of investment advice, and the necessity of cyber breach response plans, the DOL ensures that the retirement security promised to workers is protected, and that the individuals managing those funds are held to a rigorous fiduciary standard.

Form 5500: Reviewed By the IRS and the DOL

Both the IRS and DOL rely on data from Form 5500 for enforcement, data collection, and identification of red flags, making it vital for plan sponsors to ensure timely and accurate filing. Errors and oversights with Form 5500 can trigger audits and investigations from the IRS, the DOL, or both. Confirming that either the IRS or DOL can conduct plan audits at any time, World Advisors remind us that “Retirement plan audits are designed to protect participants by ensuring that workplace retirement plans…comply with ERISA and tax rules. Under ERISA, the IRS oversees a plan’s tax-qualified status, while the Department of Labor (DOL) enforces fiduciary and reporting standards.” In effect, the IRS and the DOL have a “handshake agreement” related to their regulatory and oversight roles. The IRS and DOL routinely share findings, so red flags at one can result in problems with the other. For example, if the DOL finds that an employer didn’t deposit 401(k) deferrals on time, that is a fiduciary breach (DOL). However, it is also a “prohibited transaction,” which triggers an excise tax (IRS).

Participant complaints, late payroll deposits, missed distributions, bad math or missed deadlines (including tax deadlines), missing participants, unreasonable fees and notification failures are other examples of plan oversights that can result in investigations, penalties, and even loss of tax status or being held personally liable to restore losses to the plan. ERISA defense attorneys point out that seemingly minor mistakes on Form 5500 can escalate into major problems for retirement plan sponsors. Though it is typically prepared by third party service providers, “Form 5500 is filed under penalty of perjury, which means that anyone signing should, at a minimum, review the form at a high level to be sure that nothing in the form is obviously inaccurate.” Accordingly, ADP advises retirement plan sponsors to proofread Form 5500 carefully and emphasizes: “Submitting an insufficient or incorrect Form 5500 can result in rejection and increases compliance risk. Both the DOL and IRS may impose fines for inaccuracies….”

A common compliance trigger related to the filing of Form 5500 is failure to record an up to date and adequate ERISA fidelity bond, obtained from a surety listed by the U.S. Department of Treasury. ERISA Fidelity bonds are specifically required by ERISA to protect the assets of the retirement plan from dishonest acts, like fraud or theft. Across the country, retirement plan sponsors ensure continuous compliance by obtaining their ERISA Bonds from leading national provider, Colonial Surety Company. Importantly, Colonial Surety Company offers multi-year ERISA bonds and includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered.

Protection Against Errors, Omissions, Investigations and Allegations?

Though required, ERISA Bonds protect the plan—not the sponsor. Only fiduciary liability insurance protects retirement plan sponsors in the event unintended mistakes result in costly and disruptive investigations and fiduciary breach allegations. Without fiduciary liability insurance, a plan sponsor can be personally liable for making the plan whole in the face of errors and oversights. Moreover, the DOL now obligates plan sponsors to mitigate cybersecurity risks to retirement plans, by following specific cybersecurity guidance. To help retirement plan sponsors mitigate their risks, Colonial Surety Company offers an efficient and affordable Fiduciary+Cyber Liability Insurance bundle. For a few dollars a day, you’ll be armed with:

$1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.

Quote and Obtain Fiduciary+Cyber Liability Insurance Package

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