Employee Benefit Plan Audit

EMPLOYEE BENEFIT PLAN

FAQs

What is an employee benefit plan audit?

An Employee Benefit Plan (EBP) audit is a specialized audit of a company's employee benefit plans, such as 401(k) or pension plans. It's typically required for plans with a significant number of participants (100 participants or more).

The purpose is to ensure the plan operates according to the plan documents and the applicable laws and regulations. The audit also confirms the plan's financial statements are accurately presented and comply with regulations, such as those under the Employee Retirement Income Security Act (ERISA).

Lastly, an EBP audit certifies that the funds are used solely to benefit the plan participants and their beneficiaries. It helps identify operational errors, inefficiencies, or areas for improvement in the plan's administration.

What number of participants requires an annual employee benefit plan audit?

Plans with 100 participants or more require an annual employee benefit plan audit.

There is an exception to the 100-participant threshold. ERISA allows employers with between 80 and 120 participants, as of the first day of the plan year, to file Form 5500 in the same category (large or small) as indicated on Form 5500 for the previous year. Large plans are required to attach audited financial statements to their Form 5500 filing.

What are some of the typical issues that come up during employee benefit plan audits?

Communication issues are among the most common problems that come up during Employee Benefit Plan (EBP) audits. Communication from an auditor may be inconsistent or incomplete, resulting in missed deadlines, last-minute requests, and unnecessary stress.

Another common issue identified during EBP audits relates to errors in plan operation. For instance, sometimes, a business will misinterpret a plan document's definition of wages, resulting in incorrect 401k deferral or employer matching amounts.

While the latter can be rectified during the audit process, a company can do little if its audit partner is not communicating effectively with them. That's why at Clearview, we are committed to erring on the side of over-communication, ensuring consistency and transparency to every EBP audit client.

What are the potential consequences of not being compliant with your EBP audit?

Companies found to be non-compliant with the auditing requirements under ERISA can face fines from the Department of Labor of up to $100,000.

What triggers a Department of Labor (DOL) audit?

A DOL audit can be triggered by various factors, such as significant assets or liabilities, late or incomplete filings of the annual report (Form 5500), complaints from plan participants, or indications of noncompliance with ERISA regulations. Random selection by the Department of Labor (DOL) can also trigger an audit.

What is ERISA?

ERISA stands for the Employee Retirement Income Security Act of 1974. It’s a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to protect individuals in these plans.

ERISA requires plans to provide participants with plan information, including:

Important information about plan features and funding.
Minimum standards for participation, vesting, benefit accrual, and funding.
Fiduciary responsibilities for those who manage and control plan assets.
Grievance and appeals process for participants to get benefits from their plans.
The right to sue for benefits and breaches of fiduciary duty.

There may also be certain state laws that affect employee benefit plans, but ERISA is a federal law that supersedes any state laws that relate to private employer-sponsored retirement and health plans.

What areas does the Department of Labor (DOL) focus on in audits?

The DOL tends to focus on:

Participant data and eligibility
Delinquent payroll deposits
Proper vesting
Lost participants

When would an audit warrant an ERISA attorney involvement?

Whenever significant operational errors occur, plan sponsors should consider engaging ERISA counsel.

Plan sponsors can self-correct many operational errors – such as late remittances and minor errors in the calculation of eligible wages, contributions, or vesting. When larger errors are identified, such as material errors in the calculation of eligible wages, or it’s determined that there is a missing plan amendment, then it’s recommended to talk with ERISA counsel.

What are common mistakes with employee benefit plan audits?

The three common areas of errors are:

Mistakes in the determination of eligible wages (e.g., excluding bonuses when they should be included)
Late remittances of contributions
Mistakes in the computation of vesting

What areas are covered in an audit of a defined contribution plan?

Audit teams will determine testing strategy based on their initial risk assessment of the plan; however, the following areas would typically be covered:

Participant and employer contributions
Participant data
Benefits paid from the plan
Participant loans
Expenses paid from the plan
Nondiscrimination testing compliance
Parties-in-interest transactions

Meet Your Employee Benefit Plan Audit Advisor

Margaret Michael

Principal

Employee Benefit Plan Audit

Margaret Michael is a Principal in the Audit and Assurance Practice at Clearview Group and leads the employee benefit plan (EBP) audit service. Margaret has over 18 years of experience working in public accounting. She has a proven track record of excellence in serving clients of varying sizes and industries.

Margaret has established herself as a leader within the employee benefit plan audit industry. In that role, she is responsible for delivering appropriate annual training to auditors from partners through associates, serving as the quality reviewer for employee benefit plan audits, providing direction and guidance to audit teams, and distributing information regarding new audit and/or accounting pronouncements. She is a hard-working team player who brings experience and dedication to her job. Margaret’s strengths include developing and training associates, providing excellent client service, and bringing technical excellence to audits.

Margaret is a member of the AICPA and MACPA.

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Clearview Group is an award-winning, dynamic management consulting and CPA firm offering services that are flexible and scalable to meet the specific needs of our clients of all sizes and industries. Committed to providing real solutions that offer practical and efficient improvements to processes, procedures and operations, Clearview Group delivers exemplary client services normally associated with national firms, but with the hands-on, personalized feel of a local firm.

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