Generally, if your company sponsors an employee benefit plan with 100 or more participants (which includes those individuals eligible to participate, whether they have elected to participate or not), the plan financial statements are subject to an annual audit by an independent auditor under the Employee Retirement Income Security Act of 1974 (“ERISA”).
The audit is performed on behalf of all participants and should ensure there is a high likelihood participant records and accounts are being properly administered and adequately maintained. ERISA provides the option for a limited scope audit (vs. full scope) if the auditor can rely on investment information certified as complete and accurate by certain banks, trust companies or insurance companies.
The limited scope audit option could save time and money on the audit as the auditor is not required to perform testing over the investment balances. However, the limited scope exemption does not extend to participant data, contributions, benefit payments, income allocation, loans and other participant related information.
A first-year audit can be intimidating. However, below are a few tips that will help ensure the process runs as quickly and smoothly as possible.
1. Communicate with your auditor early in the planning stages and ask for a listing of all of the items they will need to perform the audit. Also, discuss timing, how long they will be in the field and how many individuals they plan to have on site.
2. Gather all plan-related documentation, such as:
- Plan Document
- Plan Amendments
- Investment Policy Statement
- Fidelity Bond Policy
- Agreements with service providers
- Plan governance meeting minutes
- Trustee Agreement
3. Communicate with your custodian to determine if they are able to provide an adequate certification in order to engage the auditor to perform a limited-scope audit.
4. Have a discussion with your Third Party Administrator (TPA) or Record-keeper and ask the following questions:
- Who will be main point of contact for the auditor?
- Are they able to provide the auditor online access to reporting?
- What will you need to provide to them in order to ensure timely reporting?
- When will they be able to provide a reporting package to the auditor?
5. Ensure there are effective internal controls over your employee benefit plan administration and that you have a good understanding of how the process works from new participant to distribution of plan assets. Most plan administrators use qualified service providers to help administer different aspects of the plan, however, the ultimate responsibility remains with the plan administrator.
6. Hire a qualified employee benefit plan auditor who audits more than 100 plans. The Department of Labor has found a direct correlation between audit quality and the number of audits performed (see further information regarding this here.
First year audits will undoubtedly present challenges to the plan sponsor and auditor. However, using these tips will ensure the process is as painless as possible. Your auditor and service providers are there to help, so working together and communicating with all parties will also ensure the best results.
Nancy Cox is a partner based out of our Buffalo, NY office.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
