An Overview of The Employee Retirement Income Security Act (ERISA) of 1974
ERISA was enacted to solve abuses in the private pension and welfare benefit plan system.
It's overseen by:
- The U.S. Department of Labor (DOL),
- The Internal Revenue Service (IRS),
- And the Pension Benefit Guaranty Corporation (PBGC).
It includes provisions to:
- Protect plan participants and beneficiaries.
- Detect and deter abusive practices.
To follow ERISA provisions, plan administrators should:
- Annually report financial information and activities of employee benefit plans.
- Include in that report, an independent qualified public accountant (IQPA) issued audit.
- Make sure the IQPA stated within the audit, that the following is accurate:
- The plan's financial statements (and any other required schedules) must conform with generally accepted accounting principles (GAAP).
- Plans with over 100 participants MUST BE audited annually.
- The plan sponsor is responsible for engaging the IQPA
Why Experience Matters
According to the DOL...
"One of the most common reasons for deficient accountants' reports is the failure of the auditor to perform tests in areas unique to employee benefit plan audits. The more training and experience that 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."
-Selecting An Auditor For Your Employee Benefit Plan by the DOL.
The DOL traced most deficit audits to CPAs with less auditor experience of employee benefit plans.
- 76% of audits performed by firms which perform less than three ERISA plan audits a year, have deficiency findings.
- 50% of CPA firms audit at most, one or two employee benefit plans a year.
- 70% of auditors audit fewer than six ERISA plans a year.
What happens when an audit has a deficiency?
Factors for establishing congruence with professional standards:
- Adequacy of technical training and knowledge on the part of auditors;
- Auditor awareness of the uniqueness of employee benefit plan audits;
- Whether auditors have established quality review and internal process controls;
- Plan administrator(s) and/or auditor(s) perception (beyond fulfilling governmental requirements) of the importance of employee benefit plan audits;
- Amount of employee benefit plan audit work in the auditor’s practice;
- Auditors completion necessary audit work;
- Auditors full understanding of the limited scope audit exception; and
- The period of time available to adapt to new technical guidance.
The AICPA established the Employee Benefit Plan Audit Quality Center (EBPAQC) to aid CPAs in meeting the challenges of performing quality audits specific to this complex area. The EBPAQC is a firm-based membership center which includes resources about employee benefit plans such as pension, health and welfare, and 401(k) plans.
The AICPA's Plan Sponsor Resource Center has plenty of tools and resources for plan sponsors, administrators, and trustees.
Explore our other blog posts regarding employee benefit plans:
- Employee Benefit Plan Audits | Is Your Auditor Qualified?
- Employee Benefit Plan Audits | 5 Answers to Questions You May Have