Does Your Employee Benefit Plan Require an Audit? Here is what to expect

The audit of an employee benefit plan (EBP) requires expertise and a high level of understanding and scrutiny of the plan documents. Not all CPAs have the knowledge and experience it takes to correctly perform an audit of an EBP. Because of the nature of these in-depth plan documents and the expertise needed to understand every detail, the American Institute of Certified Public Accountants (AICPA) has created a white paper outlining common deficiencies found in EBP audits.

The Department of Labor (DOL) requires an EBP audit if the number of eligible employees for your plan is one hundred or more. Do you offer a retirement plan to your employees? If so, is your plan required to have an external audit performed?

An auditor experienced in EBPs can help you prepare for your audit. Below are the key areas that will be tested during your audit.

1. Participant data – Your auditor will request a company census from you. This census should include each employee’s name, date of birth, date of hire, gross wages, employee contributions to the plan, and any employer matching contributions to the plan. Your auditor will then test selected information on this census to ensure its completeness and accuracy. The completeness and accuracy of a census is important as this is the document you will also provide to your third-party administrator to complete your compliance testing.
2. Investments – Your auditor will test the fair value of the investments in your plan to ensure they are presented fairly on your financial statements.
3. Contributions – Contributions include both employee deferrals into the plan and employer matching contributions. Your auditor will recalculate, on a test basis, employee deferrals based on their plan elections, and will also recalculate the employer match based on the matching calculation provided in the plan documents.
4. Participant benefit distributions and withdrawals – On a test basis, your auditor will select distributions to determine that amounts distributed to the participants agree with participants’ requests, and that all tax withholding rules have been followed.
5. Related parties and prohibited transactions – Your auditor is required to identify all your plan’s related parties and parties in interest, and then to determine if any of the transactions the plan has with those related parties are prohibited by the DOL.

Implementing your plan in compliance with your plan documents and remaining in compliance with DOL rules and regulations are essential. If errors are found, your auditor should provide the information necessary to fix those errors and be in compliance with requirements provided by the DOL.

Choosing the right auditor for your plan is imperative. When choosing an auditor, make sure you select one that understands the unique requirements for testing of the plan and plan documents. R&A’s EBP audit team has over 30 years of combined experience in auditing employee benefit plans. Additionally, each year, the team attends EBP conferences and continuing professional education courses to remain up to date on the latest requirements from the DOL. Contact R&A with questions regarding your plan.