What Employers Should Know About Qualified Retirement Plan Audits

For employers, sponsoring a qualified retirement plan isn’t easy. Staying up to date on the constantly changing guidance and rules issued by federal agencies such as the U.S. Department of Labor (DOL) and IRS is a challenge. Independent retirement plan audits can help your organization fulfill its compliance requirements and potentially reduce the risks of plan administration. With the SECURE Act 2.0, there are many new provisions plan sponsors will need to be aware of, such as mandatory auto-enrollment for any new plans set up on or after January 1, 2023, and the reduced eligibility period for long-term part time employees.

A retirement plan audit’s purpose

Qualified retirement plans include traditional pensions, 401(k)s, 403(b)s and some profit-sharing plans. The primary purpose of a retirement plan audit is to ensure that the plan is operating in compliance with applicable laws as well as the most recent regulations and guidance set forth by the DOL and IRS. An independent audit also reassures stakeholders that your plan’s financial statements offer reliable information. Audits can be one of two types – an ERISA 103(a)(3)(c) audit, which are more limited due to the certification of investments and the related income from a qualifying institution, or full scope, which would include investments and is more common for plans who hold outside investments, such as employer securities or real estate.

The Employee Retirement Income Security Act (ERISA) requires annual audits of plans with 100 or more eligible participants at the beginning of the plan year. ERISA also requires plan administrators to follow U.S. Generally Accepted Accounting Principles when creating plan financial statements.

Engaging an auditor

It’s important to choose your retirement plan auditor carefully. You’ll of course want to consider the prospective auditor’s professional qualifications, experience and licensing. Important questions to ask include what, if any continuing education is taken each year, how many and what type of retirement plans the auditor works on, and their understanding of your retirmement plan’s investments.

You must also ensure that the auditor you engage doesn’t have any financial interests in the retirement plan or plan administrator that could bias the audit. For example, the DOL doesn’t view a plan auditor as independent if that person also maintains the plan’s financial records.

The American Institute of Certified Public Accountants offers guidance on creating a request for proposal (RFP) for a qualified plan audit. An effective RFP describes the scope of the engagement — including its objectives, special considerations and expected schedule.

Risks abound

Unqualified auditors can provide bad information and leave employers vulnerable to unchecked plan failures. This could lead to a DOL investigation and financial penalties. Contact us for more information about properly conducted retirement plan audits. Aldridge Borden proudly assists many plan sponsors with their annual audits, which includes 401(k)s, 403(b)s, and profit-sharing plans. We can also assist with 5500 filings in relation to these audits.

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