The July 31 Form 5500 filing deadline for employee benefit plans will be here before you know it. To avoid late fees and penalties, it’s important for plan sponsors to understand the compliance rules that trigger the audit requirement before it’s time to file with the Internal Revenue Service (IRS). The Employee Retirement Income Security Act of 1974 (ERISA) contains a requirement for annual audits of plan financial statements by an independent qualified public accountant. If you sponsor an employee benefit plan subject to Title I of ERISA, you are subject to annual reporting requirements that may include an audit of the plan’s financial statements. Under the law, plan administrators, the IRS, and the U.S. Department of Labor (DOL) have a responsibility to determine compliance with legislative and regulatory requirements under ERISA.
Generally, defined contribution or defined benefit plans with 100 or more participants on the first day of the plan year are subject to the audit requirement. However, there is an exception under the 80 to 120 participant rule. If the number of participants covered under the plan as of the beginning of the plan year is between 80 and 120, and a small plan annual report was filed for the prior year, the plan administrator may elect to continue to file as a small plan.
The first step to determine whether or not your plan needs an audit is to calculate the number of participants. There are three types of participants (1) employees who are actively participating, (2) retired, deceased, or separated employees who still have assets in the plan and, (3) eligible employees who have yet to enroll or have elected not to participant in the plan. It is important to note that employees become includable as participants on the date which the employee satisfies the plan’s specific eligibility requirements – regardless of whether they elect to participate. If your plan reached 121 participants, as of the beginning of the plan year, then the plan will need to file the Form 5500 as a large plan and will require an audit for the plan year and every year after unless the plan falls below 80 participants.
The Importance of a Quality Benefit Plan Audit
In a 2015 report that assessed the quality of employee benefit plan audits performed by Certified Public Accountants (CPAs), the DOL found that 39% had major deficiencies which put $653 billion and 22.5 million plan participants and beneficiaries at risk. Click here to view the DOL letter to plan administrators on the importance of obtaining a quality audit from an independent qualified CPA firm. The letter specifies certain qualifications that plan administrators should corroborate prior to engaging a CPA firm. Moving forward, it will be more challenging for plan sponsors to defend their auditor selection if responses to the bulleted items included in the DOL letter are not adequate. As a plan fiduciary, one of your most important duties is to hire a qualified and experienced auditor to perform your employee benefit plan audit.
Calvetti Ferguson’s Employee Benefit Plan Audit Practice
We help plan sponsors manage the complex rules and regulations and increasing scrutiny from the DOL and the IRS to keep plans secure. To show our commitment to our clients, as the employee benefit plan practice leader, 100% of my time is dedicated to providing auditing and consulting services to plan sponsors of employee benefit plans. We are a member of the American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center. As a member firm, we invest time in our professionals to allow for training and attendance of AICPA conferences every year to keep up to date with the rules and regulations that affect your plan and plan audit. To learn more, view our EBP audit page.
If you have any questions on the DOL’s letter or would like more information on how our firm may assist you with your employee benefit plan audit, please contact Natasha Erskine.