If you offer 401k benefit plans to your employees and have more than 100 employees participating each year with an account balance, you need an audit. In the past, plan sponsors were able to request a limited scope audit of the 401k plan if their plan’s investment information was certified by a bank, insurance company, or similar financial institution regulated by a state or federal agency. However, with recent changes to the rules, this 401k audit is now called an ERISA Section 103(a)(3)(C) audit.
To help you understand the changes and prepare for your upcoming 401k audit, we’ll outline the difference between a non-ERISA Section 103(a)(3)(C) audit and an ERISA Section 103(a)(3)(C) audit.
What is an ERISA Section 103(a)(3)(C) Audit?
An ERISA Section 103(a)(3)(C) audit is a limited audit of your employee benefit plans. Unlike the old version of limited scope audits, an auditing professional cannot simply rely on the certification alone. They must now review the certification, assess that it meets ERISA regulations, confirm its appropriateness, and issue an unmodified opinion.
Now, they must take the time to review the data, ensure it meets ERISA regulations and is appropriately certified, and issue an official opinion. Although they must review the information, they do not need to conduct tests on the information.
Previously, a limited scope audit of 401k plans allowed auditing professionals to complete their procedures while reporting on a limited basis without the client’s full acknowledgement. This left quite a bit of room for confusion. The new rules surrounding ERISA Section 103(a)(3)(c) are more stringent, leading to better transparency and a more accurate audit.
Non-ERISA Section 103(a)(3)(C) vs. ERISA Section 103(a)(3)(C) Audits: Key Differences
If you offer employee benefit plans, you’ve likely heard your auditing team mention a non-ERISA Section 103(a)(3)(C) audit or an ERISA Section 103(a)(3)(C) audit. Although both audits are similar and produce similar results, there are a few differences.
A non-ERISA Section 103(a)(3)(C) audit is a complete audit of your employee benefit plans. During this audit, your auditing team will thoroughly test all areas of your benefit plans and review other required documentation to ensure you comply with ERISA (Employee Retirement Income Security Act) and the DOL (Department of Labor). Because this is a full audit, it requires significant time and can be more expensive.
It’s important to note that non-ERISA Section 103(a)(3)(C) audit does not require investment certification, as your auditing team will test the data during the audit and issue their official opinion.
An ERISA Section 103(a)(3)(C) audit excludes certified investments from testing if the required documentation is provided and it meets strict ERISA requirements. Because a 401k auditor does not need to spend time testing the data, they can reduce the hours necessary for your review, leading to a less expensive audit.
Benefits of an ERISA Section 103(a)(3)(C) Audit
If you have access to the required documentation for your investments, you may be eligible for a limited scope audit for 401k plans. There are several benefits of choosing an ERISA Section 103(a)(3)(C) audit. These audits:
- Increase cost efficiency.
- Reduce the turnaround time for a completed audit.
- Streamline your financial reporting.
It’s important to understand that you’ll need a non-ERISA Section 103(a)(3)(C) audit if you do not have access to appropriate documentation for certified investments. Reviewing the documents required for your audit before scheduling your 401k audit is helpful. This helps ensure you’re eligible and prepared for a limited scope audit of your employee benefit plans.
How Assurance Dimensions Help Plan Sponsors
Sponsoring a 401k employee benefit plan can be a great way to attract and retain qualified employees for your organization. However, offering employee benefits subjects your organization to required audits. Thankfully, you can opt to undergo a limited scope audit for 401k plans or choose a non-ERISA Section 103(a)(3)(C) audit to ensure complete compliance with ERISA and the DOL.
Assurance Dimensions offers both types of benefit plan audits to meet your needs. Our commitment to transparency ensures you’re fully aware of your auditing obligations, and we provide expert guidance to ensure a smooth auditing process. Contact us today to learn more about our employee benefit plan audit services.