By Chris Valponi, APR
During a benefit plan audit, we consistently find that through the audit process, we uncover preventable discrepancies that ultimately could result in penalties or other adverse effects on a business.
Does your organization have a pension plan and are you confident in your knowledge of the applicable regulations or your ability to monitor the Third Party Administrator? Many organizations are unsure if they have the necessary knowledge of regulations or skill to monitor the third party administrator. This weakness speaks to the importance of hiring a quality employee benefit plan auditor.
The Department of Labor (DOL) is continuing to increase its scrutiny of employee benefit plans under the requirements of Employee Retirement Securities Act of 1974 (ERISA). Increased scrutiny from the DOL means there is a greater need for the plan sponsor to engage a plan auditor capable of performing a quality employee benefit plan audit if one is required or requested.
Generally speaking employee benefit plans with 100 or more participants are required to have an audit as part of their annual requirement to file a return, most commonly the Form 5500. The sponsor of the plan, known as the plan administrator, is responsible for obtaining and engaging an auditor for the plan audit.
The benefits of obtaining a quality plan audit are:
- An audit provides an independent third-party report that can be issued to concerned parties such as participants, plan management, the Department of Labor and other interested parties. The audit report provides assurance that the information is reliable to assess the plan’s present and future ability to pay benefits.
- Obtaining an audit helps to promote the financial integrity of the plan which helps users determine whether the necessary funds will be available to pay retirement, health and other promised benefits.
- The audit can be utilized as a tool to assist management in improving and streamlining plan operations by evaluating and strengthening the plan’s internal control over financial reporting and identifying plan control weaknesses.
- The audit assists the plan administrator in fulfilling its legal obligation to file a complete and accurate Form 5500, if the plan is required to have an audit performed.
Under ERISA, hiring a plan auditor is considered a fiduciary responsibility of the plan administrator and with any fiduciary responsibility that is not upheld, there is risk of potential liability. In the case of employee benefit plans, a significant amount of that risk falls on the plan administrator.
- Fiduciaries that don’t follow basic standards of conduct may be personally liable to restore any losses to the plan. DOL studies are uncovering that an increasing number of plan audits are identified as having significant deficiencies, meaning plan audits are not being properly designed, executed and utilized to uncover and mitigate risk to the plan administrator’s fiduciary duties.
- An incomplete, inaccurate or untimely audit could result in a rejection of a Form 5500 filing and/or penalties, all of which are the responsibility of the plan administrator.
- Finally an auditor may perform tests and procedures that could uncover organizational wide deficiencies that would require the plan administrator to make all affected participants financially whole within the plan at the expense of the plan administrator, such as:
- Eligible employees not enrolled that could have been contributing to the plan
- Bonus pays not having proper pension withholdings
- Failure to adjust withholdings based on miscommunications of employee eligible wage increases
As an experienced pension plan audit firm and a member of the Employee Benefit Plan Audit Quality Center (EBPAQC), our firm is uniquely positioned to help you navigate the ever-changing and complex environment surrounding employee benefit plans and audits of those plans.
If you have questions, I’m ready to start the conversation and happy to help. Please contact me at firstname.lastname@example.org or any of the professionals at 216.831.0733.