Your Clients’ Plan Audit Qs, Answered

your clients retirement plan questions answered

If your plan sponsors aren’t already, they should be preparing their year-end report. The penalties for failing to conduct an audit can be substantial. Issues can surface during the audit that may be easier and less expensive to correct now versus down the road.

For plans with 100 or more eligible participants at the start of the plan year, the annual report must include an audit report issued by an independent qualified public account stating whether the plan’s financial statements conform with generally accepted accounting principles. An audit should comfort participants, knowing their plan’s operating processes are in good order.

We’ve put together some common questions and answers to help your plan sponsor understand the audit rules – and so you can ensure your clients are taking them seriously.

Is the Plan Exempt From the Audit Requirements?

Governmental plans, church plans, and certain 403(b) plans that qualify under safe harbor are exempt from the audit requirements.

How Does a Plan Sponsor Find an Auditor?

ERISA requires that the auditor be independent. and Sponsors should utilize a firm that is separate from the employer’s accounting firm and does not do any other business with the company or any of its directors or owners.

How Is the Number of Eligible Participants Calculated?

The eligibility rules can be complicated. In general, plans with 80 to 120 participants at the beginning of the current plan year may choose to complete the current annual report using the same “large plan” or “small plan” category used for the previous year. If the Plan previously filed as a “small plan” last year, it may wish to again for the following plan year.

What Documents Do Plan Sponsors Need to Provide?

Every audit is different, but the auditor will likely need to review records relating to participant enrollment, plan contributions and distributions, auto-enrollment, and payroll files. Sponsors may need to provide records relating to tax compliance, related party transactions, and the Plan’s benefits committee (if it has one).

How Long Will the Audit Take?

Sponsors should begin the audit process at least 90 days before the Form 5500 deadline to allow enough time to gather documents, follow up on open items, prepare financial statements, and wrap up.