The ‘ERISA Audit’ Requirement

By Anthony L. Scialabba IV, Esq., QKA

 

Why is it required that certain retirement plans be audited?

 

The Department of Labor (“DOL”) mandates plans be subject to an annual audit by an independent auditor. This audit is necessary to ensure that plans are operated and managed in accordance with certain prescribed standards.

 

What types of plans are exempt from being audited?

 

Plans that are not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) are exempt from the audit requirement. The DOL has a rule called “80-120”, which provides that if the number of eligible participants at the opening of the year is between 80 and 120, and a Form 5500 was filed for the prior plan year, the plan may file a Form 5500 in the same classification (small or large plan) as the previous year.

 

A small plan has less than 100 eligible participants, whereas a large plan has 100 or more eligible participants. A plan that files a Form 5500 as a small filer for the plan year is not required to be audited until it surpasses the eligible participant threshold of 120 at the beginning of a plan year. An eligible participant is anyone who is eligible to participate in the plan, which includes (1) employees who have met all of the eligibility requirements but do not participate in the plan; and (2) terminated employees who have balances in the plan on the first day of the plan year.

 

What is involved in the audit?

 

The auditor will conduct a review of plan documents and financial statements, along with the Form 5500. In the process, the auditor makes certain that the plan is functioning within the requirements outlined by the plan itself while also abiding by the regulations required by the DOL and the Internal Revenue Service. The auditor may impart recommendations for improvements to plan processes and internal controls, among other areas.

 

How to appropriately prepare for the audit?

 

Ensure that plan documents, financial statements, and communications are kept organized. Time will be saved from being able to keep track of where information is stored.

 

How long does it take for the audit to be completed?

 

There is no set time in which the audit will be concluded. It may take multiple months for the audit to be finished. This is because of how thorough a review must be performed.

 

Regardless of the length of the audit, the audit report must accompany the Form 5500. Thus, it is subject to the filing deadlines of the Form 5500. The Form 5500 is due seven months after the last day of the plan year, but an extension may be granted for an extra two and a half months.

 

If you have any questions or comments with regard to the annual audit requirement, please call 856-396-0499 or email clientservices@retirewelltpa.com.