If your clients 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 participating employees 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 savers, knowing their plan’s operating processes are in good order.
We’ve put together some common questions and answers to help your client understand the audit rules – and so you can ensure your clients are taking them seriously.
Governmental plans, church plans, and certain 403(b) plans that qualify under safe harbor are exempt from the audit requirements.
ERISA requires that the auditor be independent, and businesses 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.
The eligibility rules can be complicated. In general, plans with 80 to 120 employees 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.
Every audit is different, but the auditor will likely need to review records relating to employee enrollment, plan contributions and distributions, auto-enrollment, and payroll files. Employers may need to provide records relating to tax compliance, related party transactions, and the Plan’s benefits committee (if it has one).
Businesses 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.
An auditor may charge $2,500 – $10,000, or more, depending on the size and complexity of the plan.