DOL

Employee Benefit Plan Audits

by Jeremy Myers, CPA

Senior Audit Manager at Atchley & Associates, LLP

 

We are getting closer to the time of the year that human resource professionals in every industry are putting together their employee benefit plan’s census to start the process of filing their annual IRS Form 5500.  Depending on the size of your plan, you may file as a small plan or a large plan.  Plan sponsors can review their prior year Form 5500 which details the number of participants at year end. If that number is greater than 100, then you are likely to file as a large plan.  When filing as a large plan, your employee benefit plan is required to be audited by an independent auditor and that audit must be filed with your Form 5500.

Filing Deadlines

For plans with December 31st year end, IRS Form 5500 has a normal filing deadline of July 31st which is extendable to October 15th using Form 5558.

Employee Benefit Plan Audit Requirements

Once a benefit plan reaches 100 or more eligible participants at the beginning of the plan year, the plan is considered to be a large plan and an audit is required.  Eligibility is defined by the plan adoption agreement and is unique to each plan; it does not matter if the employee decides to enroll in the plan or not.

  • 80-120 Rule – There is a specific exemption for plans that have between 80-120 eligible plan participants at the beginning of the plan year to file their Form 5500 the same way it was filed in the previous year. With the 80-120 rule, plans can defer the audit requirement until the plan reaches more than 120 eligible plan participants.  A plan cannot change between a large plan to a small plan unless the plan begins the year with under 100 eligible participants.

Type of Audit – Full-Scope or Limited-Scope

There are two types of audits, Full-Scope or Limited-Scope, based on the certification of plan investments and loan balances.  If the investments are certified by the TPA, typically the Trustee who holds the investments, under 29 CFR 2520.103-8 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the audit qualifies as a Limited-Scope Audit.  Limited-Scope Audits allow the auditor to rely on the certified investment statements and not perform additional procedures on those investments or loans.  Full-Scope Audits also include an audit of the investment and loan transactions.

What a Limited-Scope Audit Covers

The most common audits are Limited-Scope Audits and we typically test/verify information related to the employees of the plan sponsor(s).  An audit typically consists of the following steps:

  • Insuring that eligibility of participants was determined properly
  • Testing employee and employer contributions for both value and timing in accordance with the plan document and the Department of Labor (DOL) timing guidelines
  • Verifying that loans and distributions were made in accordance with plan documents and vesting schedules
  • Verifying that earnings allocated to plan participants are in line with overall plan investment performance
  • Insuring that the Form 5500 reconciles with the audit, although we do not prepare/provide assurance on the Form 5500, we do review it to insure the required information is presented

Benefits of an Audit

In the case of benefit plan audits, as these can be required once you meet the eligibility criteria mentioned above, I’d like to highlight the benefits you will receive in addition to meeting the DOL requirements:

  • Assurance that your plan is operating in accordance with DOL requirements.
  • If contributions are not being made properly, we can help plan sponsors determine additional funding requirements.
  • We are not the DOL and we will help your plan stay in compliance to limit the impact of a DOL audit.
  • We can make suggestions to help management improve their internal controls, processes, and documentation around plan activities.
  • If forfeitures can be used to pay plan expenses, the audit qualifies to be paid out of the forfeiture account.

If you have any additional questions about Employee Benefit Plan Audits, please feel free to reach out to Jeremy Myers, CPA, Audit Senior Manager via email jmyers@atchleycpas.com or directly at (512) 590-7587.