Employee benefit plans (EBPs), including defined contribution and defined benefit plans, have increasingly become critical components of the workplace. They are highly valued by employers to attract and retain quality employees who rely on these plans in order to help support their future financial security.
As plan options and the legal and regulatory environment evolve, the complexity of administering them has grown, along with the challenge of compliance and staffing resources.
Required by the US Department of Labor, EBP audits — commonly referred to as ERISA audits — are generally required for defined contribution plans having 100 or more participant account balances and for defined benefit plans having 100 or more eligible participants as of the beginning of the plan year. The plan’s audited financial statements are required to accompany the Form 5500 filing.
Managing the audit often falls on the shoulders of an HR manager or an individual in payroll or accounting, and the prospect of navigating an audit can feel daunting. Working with a CPA firm that has experience in auditing employee benefit plans can help to eliminate the stress and streamline the audit process. In addition to providing audited financial statements of the plan, the audit can also help in providing valuable information to maintain compliance and uncover errors, which may help in avoiding penalties.
Preparing for the Audit
We find there is often a misconception about how much work is involved in an EBP audit. It’s a time-intensive process for the auditor and the client; however, with proper preparation of the engagement, organization, and attention to detail the majority of common stumbling blocks can be alleviated. Addressing these issues in advance can save time and avoid setbacks. Attention should be taken to ensure that the following items are available and accurate as you prepare for the audit:
- The plan is being administered in compliance with the plan’s governing documents.
- Plan documents are maintained and are up to date.
- Details of the internal controls surrounding the plan are documented.
- All eligible participants are identified and are enrolled if elected.
- Employee contributions are being withheld and remitted to the plan on a timely basis.
- Compliance filing deadlines are met.
While additional items will be addressed, frequent deficiencies we encounter include lack of documentation or payroll systems that aren’t integrated seamlessly. For instance, does the dollar amount taken out by payroll for participant deferral contributions reconcile with the amount actually remitted to the plan as reported by the trustee? It’s easy to have blind faith that an automated payroll service provides these functions without error, but in many cases, input errors or employee changes that are delayed or forgotten can cause major consequences down the road.
The Audit Process
An annual employee benefit plan audit doesn’t have to be an arduous or disruptive event. As members of the AICPA’s Employee Benefit Plan Audit Quality Center, we work with clients to prepare for and schedule the audit in a way that is convenient and nonintrusive, while working to complete the audit engagement in a timely manner. Our team will guide you step by step in order to accomplish this goal based on your timeline. To help facilitate this we utilize a secure, cloud-based portal that supports the sharing of confidential documents. The general flow of the audit process includes:
- Initial planning meeting to create timeline and document request list
- Data gathering
- Fieldwork
- Reporting on the financial statements, any found deficiencies, or other issues that are required reported to management
- Final meeting: evaluation of operations with valuable insights and recommendations
While it’s not always possible to eliminate all challenges, collaborating with an experienced employee benefit plan CPA firm prior to and during the audit will help you navigate the process in a streamlined and relatively stress-free manner to achieve the end results.
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Robert D. Fischer, Esq., CPA, LL.M. has been working to help businesses meet their employee benefit plan audit and compliance requirements for more than 20 years.
If you have questions regarding benefit plan compliance and audit, please contact us at 610-431-1003 or email Robert at [email protected], Douglas Pacitti at [email protected], or Richard Stiebritz at [email protected].
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