What is Required for an Employee Benefit Plan Audit?

An employee benefit plan audit can feel like an immense undertaking. The rules and regulations are complicated and the process can be time-consuming and tedious. In 1974, the federal government passed the Employee Retirement Income Security Act (ERISA) to protect the investments of employees who choose to participate in a 401k plan through their employer.

Who Needs An Employee Benefit Plan Audit?

While small businesses can waive the audit requirement, any organization that carries an employee benefit plan with more than 100 “eligible participants” at the beginning of each plan year is required to have an audit as part of the Form 5500 filing. Many assume this rule only applies if you have more than 100 actual plan participants, but this is not the case. The key term in this legislation is “eligible”. If you have more than 100 employees who are eligible for a 401k, you are required to complete an employee benefit plan audit. If you do in fact have 100 eligible plan participants, even if some of them are inactive, and you incorrectly waive your audit requirement, the Department of Labor may assess fines for the mistake. You can avoid this common pitfall by understanding how many eligible participants are included in your employee benefit plan and when your company is officially required to file an employee benefit plan audit.

Exceptions to the Rule

The “80-120 Participant Rule” explains that some large plans may be able to waive the audit requirement in certain circumstances. In order to waive the requirement, a company must meet the following criteria:

• Your organization or business had less than 100 participants in the previous plan year and was therefore able to waive the audit requirement; and

• You currently have 80 to 120 eligible participants in your employee benefit plan.

If, and only if, your organization meets the criteria listed above, you are allowed to file in the same manner you did the year before, as a business with a small employee benefit plan.

Employee Benefit Plan Audit: Full Scope vs. Limited Scope

Before getting started on your employee benefit plan audit, you must first figure out what type of audit your business needs: a Full Scope Audit or Limited Scope Audit. If the custodian of investments listed on your plan is a qualified bank or insurance carrier, you might be able to waive the requirement of a full scope audit. Because most banks and insurance companies are already held to strict auditing standards, your auditor is legally allowed to rely solely on the report obtained from the custodian of investments. On the other hand, if the custodian of investments is not able to certify the accuracy and completeness of investments, a full scope audit is needed and requires a significant amount of audit work. However, a knowledgeable and experienced auditor can make an employee benefit plan audit quick, easy and stress-free.

Leave it to the Experts

The strict requirements and regulations enforced by the Internal Revenue Service and Department of Labor can quickly become overwhelming if you find yourself in need of an employee benefit plan audit. Ernst Wintter & Associates LLP will help you from start to finish, ensuring you are in compliance with the various employee benefit plan audit regulations and filing deadlines. Get started by contacting our audit experts today.