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Employee Benefit Plan Audits | 5 Answers to Questions You May Have

Posted by Matthew B. Sarver, CPA on Jun 5, 2017 2:20:20 PM
Matthew B. Sarver, CPA
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 1. Does my employee benefit plan need an audit?

The audit requirement for your ERISA plan is based on the number of plan participants at the beginning of a given plan year.

Generally, if a benefit plan covers 100 or more participants as of the beginning of the plan year, the plan should be filing form 5500 as a “large plan.” Filing form 5500 requires an accompanying audit. 

There is an exception to the 100 plan participant requirement for an audit.  The 80-120 Participant Rule can be summarized as follows:

If the number of participants at the beginning of the year is between 80 and 120 and a form 5500 was filed in the previous plan year, you may elect to file in the same category as the prior year filing. For example, if you filed the plan’s form 5500 in the previous year as a “small plan” and the number of plan participants at the beginning of the following year is less than 120, you may elect to file as a small plan for the following year as well.

Breaking it down, the following are the scenarios in which your plan may or may not require an audit;
To answer "Does my employee benefit plan require an audit?"

  • Yes, your plan requires an audit. - If your plan had been audited in the prior year and had 100+ participants at the start of the year.
  • Yes, your plan requires an audit. - If your plan has not been audited but had 120+ participants at the start of the year.
  • No, your plan doesn't require an audit. - If your plan has not been audited before but has less than 120 participants at the start of the year.
  • No, your plan doesn't require an audit. - If your plan had been audited in the prior year but had less than 100 participants at the start of the year.

2. What should I consider when finding a qualified auditor for my Plan?

  1. Are they licensed or certified by a state regulatory authority?
  2. Are they independent?
  3. Most importantly, consider the experience the auditor has in regards to benefit plans. The DOL has recently released a report stating that deficiencies were found in 76% of examined plans where the plan auditor performed three or less plan audits in a given fiscal year.

Explore our infographic on how to determine if an auditor is qualified.

3. What happens if I would hire an auditor with limited experience and exposure?

Hiring an auditor with limited experience increases your risk of receiving a deficiency finding on your audit. Regarding such findings, the DOL has the right to reject plan filings and assess penalties of up to $1,100 per day, with a $50,000 limit. Any penalties will be the responsibility of the plan administrator.

4. What does a benefit plan audit entail?

There are several procedures that are required, here is a brief overview:

  • We will obtain information regarding your payroll cycles, determining the frequency of pay dates. Deposit dates of employee deferrals will then be examined to determine whether or not the amount has been transmitted to the Plan within a timely manner consistent with Department of Labor Regulations.
  • Examining the provisions of the Plan document to recorded Plan transactions. Depending on the Plan type, specific provisions that will be examined will include the following:
    • Eligibility
    • Allocation
    • Contribution Calculations
    • Vesting
    • Rollover Provisions
    • Notes Receivable to Participants
    • Plan Expenses
  • Reviewing benefit payments for authorization, valuation and payment.
  • Reviewing plan participant information (i.e. payroll information, benefit election forms, census data, allocation of contributions and plan expenses, etc.)
  • Procedures over notes receivable issued to participants.
  • Obtaining certifications from the plan’s trustee or custodian regarding the investments held for the Plan.
  • Determining compliance with the DOL, IRS, and any other applicable regulatory bodies.

5. How long should employee benefit plan audits take?

The timing regarding benefit plan audits will vary depending on the size of the Plan, availability of information from the plan sponsor and service providers, plan provisions, etc. However, regardless of all of these variables, the minimum guidelines presented by regulatory bodies will have Plan audits utilize man hours among all levels (partners, managers, seniors, staff, etc.) ranging anywhere from 80-120 hours. The following factors would help contribute to the audit time being reduced.

  • Full cooperation from Plan management and service providers regarding requested information
  • Ongoing communications between the Plan auditor, Plan sponsor, and engaged service providers.
  • Establishing and coordinating the stages of the audit in advance with the Plan Sponsor and service providers:
    • Planning
    • Field work and testing
    • Draft financial statements and final correspondence

The consistent discussion by all parties involved is a key part of addressing any potential problems and resolving them as quickly as possible.


Topics: Employee Benefit Plans, Employee Benefit Plan Audits, ERISA Plans

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