Employee Benefit Plan Audits

employee-benefits.jpgSo you work in the human resources department at your company. Maybe you have been with the company for several years, maybe you are new to your role, or maybe the company has seen recent growth in personnel. You have been hearing discussions within the department about an upcoming audit of your company’s retirement plan. What does this mean? Why is the company required to have an audit performed? What can you expect? We will outline a few benefit plan audit basics for you.

What is an employee benefit plan audit?

The Employee Retirement Income Security Act ("ERISA") of 1974 provides, among other things, that certain retirement plans be subject to an annual audit of the plan, as well as provide certain information to the Department of Labor ("DOL") and Internal Revenue Service ("IRS") in the form of a Form 5500.

When is an audit required for my company’s plan?

The most common reason for triggering a plan audit is that the plan reached 100 or more participants (which includes eligible yet non-participating, as well as terminated employees who still have an account balance within the plan). There are other reasons, but the plan reaching this size is the most common.

What can I expect?

There are some very common requests for documentation you can almost automatically expect your auditor will make at the outset of the audit:

  • The "audit package" from the trustee/recordkeeper. This includes a multitude of information - the plan financial statements, investments listing, detail of transactions throughout the year, participant statements, and the census, among other items.
  • Plan documents – the adoption agreement, summary plan description, amendments, IRS determination letter, etc. These are the documents signed by the plan sponsor that govern how the plan is to function and operate.
  • Payroll reports

After your auditors have received the above information, you can expect that they will make selections to test, on a sample basis. The tests are generally centered around vouching for the accuracy of the data in the above reports. For instance, tracing John Doe’s birth date and hire date to his signed offer letter. Or maybe Jane Doe retired during the year and requested that her balance be distributed to an IRA – the auditor’s may look at the backup documentation for that distribution request.

Contact Us with Your Questions

If you have questions or need help with employee benefit plan audits, contact our professionals at The Innovative CPA Group at 203-489-0612.  Or contact us online.