Employee Benefit Plan Audit Requirements

An employee benefit plan audit is subject to rules based on the Employee Retirement Income Security Act of 1974 (ERISA). This law was passed to protect the interests of employees with retirement plans such as 401k plans. ERISA rules for an employee benefit plan audit include reporting information to the Department of Labor and the Internal Revenue Service in accordance with generally accepted auditing standards (GAAS). All plan participants must be given access to this information on an annual basis. Here are other requirements administrators must follow for an employee benefit plan audit.

Small vs. Large Employee Benefit Plans

Usually only small employee business plans are allowed to waive the audit, which is up to the employer. More substantial plans with over one hundred eligible participants at the start of the plan year must generate an audit as a section of the required 5500 annual return form. Eligible participants, which are not to be confused with active plan participants, are defined as all individuals, whether active or not, that meet the eligibility requirements of participating in a qualified cash or deferred plan. Many administrators have misunderstood this wording to mean they are allowed to waive the audit as a small plan. This mistake can lead to huge monetary penalties from the Department of Labor, which is why experienced professionals must conduct a quality employee benefit plan audit.

Determining Audit Type

You must determine between a full or limited scope employee benefit plan audit for a 401k. A Full Scope Audit is necessary when the certification is unavailable for the portfolio’s custodian, who only holds a Type I SAS 70 report. In this scenario the auditor must test the custodian’s investments, which can take substantially more work. A Limited Scope Audit, on the other hand, in which the custodian holds a Type II SAS 70 report, only requires the auditor to test the participant data. The one exception to the large employee benefit plan audit is the “80-120 Participant Rule,” in which the Form 5500 annual report can be filed the same way as the previous year if the plan includes 80 to 120 participants at the start of the plan year. In other words, the option to waive the audit is possible if there were no audit the previous year.

How to Proceed

Contact Ernst Wintter & Associates for your 401k plan needs. They are Certified Public Accountants that provide audit services for employee benefit plans, as well as the securities industry and nonprofit organizations, which meet compliance standards of the DOL and IRS. The firm has been in business for over 25 years with expertise in small to midsize business employee benefit plan audit services and has a wealth of knowledge and experience to share about auditing and taxes.


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