With two-thirds of Americans saving for retirement but less than half feeling that they are saving enough, employee benefit plans have become a critical piece of most Americans retirement puzzle. Companies who offer employee benefit plans to their employees without exercising prudent care and oversight of these benefit programs risk backlash, penalties and costly litigation from their employees and the government agencies charged with protecting employee's rights. An employee benefit plan audit performed by an experienced and knowledgeable plan auditor can help plan sponsors comply with regulatory requirements and identify errors or weaknesses in the operation of their plan.
The Employee Retirement Income Security Act of 1974 (ERISA), generally requires employee benefit plans with more than 100 eligible participants to have an audit performed by a qualified, independent, public accountant. Employee benefit plan sponsors and plan administrators have a fiduciary duty to ensure that a quality audit is performed in order to protect their plan participants, plan investments and themselves. Failure to perform a quality audit exposes the plan sponsor to the possible rejection of the Form 5500 filing, which can result in penalties of up to $1,100 per day.
What steps should be taken to ensure that a quality benefit plan audit is performed?
1. Select a licensed or certified public accountant with experience in EBP audits: Auditing employee benefit plans is not a one size fits all service. It is an industry specific service that requires specialized experience and knowledge. With constant changes in the rules and filing requirements, it is imperative for plan sponsors to choose an auditor who specializes in employee benefit plans. Furthermore, federal law requires that an auditor must be licensed or certified by a State regulatory authority.
2. Verify that the selected accountant is independent: The Department of Labor addresses the issue of independence by stating, "auditors of employee benefit plans should not have any financial interests in the plan or the plan sponsor that would affect their ability to render an objective, unbiased opinion about the financial condition of the plan."
3. Maintain the plan's financial records -- and have them readily accessible: Generally, plan administrators have a duty to maintain financial records for the plan. These records will need to be furnished to the auditor so that they may successfully execute the audit. When a third-party maintains the plan investments, access to those investment records will also need to be provided.
What should be expected from a quality benefit plan auditor?
1. A quality benefit plan auditor will proactively communicate with plan administrators and third-party providers long before the audit begins to prepare for an efficient and effective benefit plan audit.
2. During the plan audit, a quality benefit plan auditor will assist the plan administrator in understanding the compliance requirements related to his or her unique plan. The plan auditor will also communicate errors to the plan administrator and areas where opportunities exist for improving plan operations.
3. A quality auditor will continue to communicate with the plan administrator long after the audit report has been filed with the form 5500. They will keep the plan sponsor informed throughout the year of changes affecting employee benefit plans.
• Christopher Bozarth is a Partner with Weiss & Company LLP and leads the Employee Benefit Plan Audit client team. Contact him at firstname.lastname@example.org.