Companies that sponsor employee benefit plans with 100 or more participants are required to perform an ERISA audit annually completed by an independent CPA firm. The purpose of benefit plan audits is to ensure employers and plan administrators meet federal law compliance and avoid costly penalties. Because ERISA audits can be challenging and time-consuming, plan administrators must be knowledgeable about important deadlines and rules. To assist you, let’s review ERISA guidelines, requirements, deadlines, and what you need for a successful audit.
ERISA Guidelines
ERISA stands for “Employee Retirement Income Security Act,” and its primary purpose is to protect retirement and health benefits for employees by meeting specific guidelines. The guidelines plan administrators must be aware of include the following:
- Ensure all employees eligible for benefits are identified and enrolled in the plan;
- Design benefit plans that comply with ERISA and other federal laws, including minimum vesting requirements, benefit accrual and funding, and fiduciary responsibilities;
- Formally document plan procedures and processes;
- Provide participants with required notices regarding their rights under the plan, such as Summary Plan Descriptions (SPDs) and certain other notifications;
- Ensure all contributions are made on time and properly reported;
- Employees have the right to sue employers if they do not comply with regulations; and
- Address potential liability or noncompliance risk through an ERISA audit conducted by a qualified independent auditor.
Note that benefit plans issued by the government and churches to their employees are exempt from ERISA compliance. Furthermore, ERISA compliance applies to the following benefit plans:
- Pension plans, including profit-sharing, 401(k), employee stock ownership (ESOPs), and 403(b);
- Welfare benefit plans, health and group life insurance, long-term disability income, severance pay, and vacation benefits;
- Health Reimbursement Accounts; and
- Flexible Spending Accounts.
ERISA Audit Requirements
An ERISA audit must be performed by independent auditors based on the Department of Labor (DOL) guidelines. The CPA auditor evaluates financial reports and identifies weaknesses or errors for plan administrators to complete and file an accurate Form 5500. The audit documents necessary to meet ERISA audit requirements include, but are not limited to:
- Plan document provisions;
- Payroll information;
- Financial statements;
- Paid claims data for health and welfare plans;
- Completed (or partially completed) Form 5500; and
- Any other relevant documents.
It is the responsibility of plan administrators to maintain complete and accurate records. The auditor uses them to perform the ERISA audit and ensure all procedures are properly and fairly documented on Form 5500. The auditor then provides a report stating an opinion of the plan’s financial statements following the new auditing standards of SAS No. 136. If there are any discrepancies due to error or fraud, plan administrators are responsible for any adjustments or material changes before filing Form 5500.
Key Deadlines
Companies can file Form 5500 electronically by the last day of the 7th calendar month after the end of the plan year. For example, if the plan year ends December 31, then Form 5500 and supporting documents must be filed by July 31. Companies may obtain a one-time extension to file Form 5500 by filing Form 5558 with the IRS before the normal due date. The extension is granted for up to 2 and a half months.
DOL Updates
The U.S. Department of Labor (DOL) has issued a final rule regarding changes to Form 5500 audit filings. The rule maintains the 100-participant threshold to differentiate between large and small plans. However, a modification has been made to the ERISA audit requirement. Now, eligible participants must have account balances at the beginning of the plan year to determine if a retirement plan audit is necessary.
Hire a Trusted CPA Firm for Your ERISA Audit
As an independent CPA firm, Assurance Dimensions has a team of qualified accounting professionals who can perform and issue an ERISA-Section 103(a)(3)(C) report. Our team understands the complex benefit plan audit guidelines and can assist you today. Contact us to learn more about our auditor services.