Employee Benefit Plan Audits

The audit is attached to and filed with the plan’s Form 5500. Form 5500 is due by the last day of the 7th month after the end of the plan year. An extension of 2½ months may be requested.  For example, if the end of the plan year is December 31, the original due date of the Form 5500 and auditor’s report is July 31 and may be extended to October 15.

The audit and Form 5500 are filed electronically with the Department of Labor.

Employee benefit plan audits are primarily compliance audits—audits that are focused on meeting Department of Labor regulations and rules such as:

• All eligible employees have the same opportunity to participate
• Assets of the plan are fairly valued
• Contributions to the plan have been made in a timely manner
• Accounts of the participants are accurate and fairly stated
• Any issues that may impact the plan’s tax status have been identified
• Any “prohibited transactions” have been disclosed

Employee benefit plan audits can also help to improve operations and internal controls around payroll, payroll withholdings, etc.

A Section 103(a)(3)(C) audit gives the plan administrator the option of not having certain investment information (at the plan level only) tested during the audit. In order to permit a Section 103(a)(3)(C)  audit, the investment information must be certified by the trustee or custodian as ‘complete and accurate.'

The Section 103(a)(3)(C) exception does not apply to any other audit areas (i.e., participant data, contributions, distributions, etc.)—it’s applicable only to certain investment information. There are other exceptions/requirements to the Section 103(a)(3)(C) audit option. Please contact us if you’d like to discuss further.

Note: A Section 103(a)(3)(C) may be less expensive than a non-Section 103(a)(3)(C) audit.

One of the plan administrator’s (or plan sponsor’s) most important duties is to hire a qualified independent public accounting firm. Incomplete, inadequate, or untimely audit reports can result in penalties being assessed to your plan. The more training and experience an auditor has with employee benefit plan audits, the more familiar the auditor will be with benefit plan practices and operations, as well as the special auditing standards and rules that apply to such plans.

Members of the AICPA's Employee Benefit Plans Audit Quality Center agree to meet specific experience, training and practice monitoring requirements. Abdo has been a member of the Center for many years and considers membership a key aspect of staying current on standards and practices for employee benefit plan audits.

When engaging an auditor, you may wish to obtain references and discuss the auditor's work for other employee benefit plan clients. If you have additional questions, you may also wish to verify with the appropriate state regulatory authority that the auditor holds a valid, up-to-date license or certificate to perform auditing services. A well-performed audit provides vital protection for your employee benefit plan. It is in your best interest—and in your plan participants’ best interest—to select an experienced, quality audit firm.

You must provide your auditor with a wide variety of documents, including, but not limited to, relevant plan documents, participant data, investment contracts, payroll records, the minutes of meetings related to the plans and identification of any communications from the Department of Labor. Prior to the audit, your auditor will provide you with a complete list of required documents and schedules; many will come from the investment custodian and/or your third-party administrator.

The Department of Labor’s participant contribution regulation requires employers of all sizes to transmit employee contributions to a plan as soon as they can be segregated from the general assets of the employer, but in no case later than the 15^th business day of the month immediately following the month in which the contribution is either withheld or received by the employer. The DOL has indicated that the 15^th business day is not a safe harbor. Plans should deposit contributions as soon as administratively possible. In evaluating the earliest reasonable date for deposits to be made, the DOL will consider the frequency of payrolls, how quickly payroll taxes are deposited, and the pattern established by the employer for making deposits.

The DOL issued an amendment to the participant contribution regulation creating a safe harbor rule for small plans (those with less than 100 participants) under which the employer will be in compliance with the law if participant contributions are deposited by small plans within 7 business days of withholding or receipt. There is still no safe harbor for large plan contribution deposits.

The VFCP is a program that allows plan sponsors to voluntarily correct 19 specific violations. If an acceptable correction is made, the Department of Labor will issue a no action letter. Click here for more information on the VFCP.