Understanding the Basics of Employee Benefit Plan Audits

Is your Employee Benefit Plan in compliance with federal regulations?

The Employee Retirement Income Security Act of 1974 (ERISA) requires that some companies offering employee benefit plans must have the Plan audited on an annual basis. How do you know if your company needs an audit? What does it consist of and who can help complete it for you?

We break down the basics of an employee benefit plan audit below.

What is an employee benefit plan audit?

An Employee Benefit Plan (EBP) audit is required by the United States Department of Labor (DOL). The audit, which must be fulfilled by an independent party, is intended to uncover any areas for improvement or concern in management of your company’s employee benefit funds.

EBP audits typically include a detailed deep dive and review of:

  • Employee and employer contributions into the Plan
  • Loans and distributions taken out of the Plan
  • Internal controls around the accuracy and completeness of the Participant Account

Who needs one?

The DOL requires that companies providing EBPs for 100 participants or more must complete an annual EBP audit. An “80-120 rule” exception is available for plans that qualify.

Who can perform the audit – and when is it due?

Only the most highly-qualified Certified Public Accounting (CPA) firms are certified to execute EBP audits due in part to their level of complexity. In accordance with Internal Revenue Code (IRS) and DOL standards, firms must receive special training and designation to perform these compliance and regulatory-heavy audits.

Audits are typically due with annual tax returns, with extension filings due October 15, 2020 for calendar year-end Plans.

What happens if a company fails to complete its annual audit?

Serious and severe penalties can be assessed to companies for failing to perform, or hire an independent CPA firm to perform this mandatory audit. IRS penalties for late filings start at $25 a day, up a maximum of $15,000, while the DOL penalty can run up to $1,100 per day, with no max.

What are the added benefits of an audit?

While avoiding penalties is the primary driver for companies to carry out an EBP audit, it can also provide a great deal of added value for organizations looking to improve or safeguard benefit plans. The audit serves as a wellness check for your plan, ensuring all contributions are remitted timely to the Plan, in accordance with the DOL regulations, avoiding late contributions, and lost earnings calculations. An audit also helps identify areas of efficiencies that can make the Plan management easier and ensure all participant accounts are complete and accurate.

Audits can uncover non-compliance with DOL and ERISA rules and regulations, inaccuracy relating to participant accounts and reveal whether the plan sponsor is complying with their required fiduciary duties.

How do I select the right CPA firm to provide this service?

Finding the best partner to help ensure your organization receives a high quality and accurate audit is critical. Before you begin to shop around, ensure the firm meets the following standards:

  • Membership with the American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Plans Audit Quality Center
  • Ensure the firm is truly independent, meaning they don’t have any financial interests in the Plan or the plan sponsor that could impact their ability to provide an independent opinion of the EBP.
  • Certified Public Accountant (CPA) designation

The DOL also provides a reference guide to help organizations select a high-quality CPA firm.

How can Maner Costerisan help?

Maner Costerisan is one of the few CPA firms who can conduct the EBP audits at an expert level. We have a team of dedicated, proactive, and highly skilled professionals specializing in EBP audits. As members of the American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Plans Audit Quality Center, we regularly invest in training and development to ensure our team is well-versed in any new or changing rules impacting Employee Benefit Plans.

Maner Costerisan performs these highly complex and regulatory-heavy audits, we are also certified to provide peer reviews of other CPA firms, reviewing their quality control systems to ensure they are performing audits at the highest standards. What does this mean for you, Maner Costerisan experienced professionals are sought after by other CPA firms to review and grade their performance.

If you’re in need of an EBP audit – or are coming close to the threshold of needing one soon, don’t stress about what’s next – we’re here to help! Contact Stephanie Calver, Manager, or Zack Skrzyniarz, Partner, to learn more.

About the authors: Stephanie Calver, CPA and Zack Skrzyniarz, CPA

Zack Skrzyniarz, CPA: Zack currently serves as a Principal in the firm’s Audit Department. Zack assists clients in the employee benefit, nonprofit, telecommunications and governmental niches. When it comes to employee benefits, he has conducted audits of 401(k)s, defined benefit plans, health and welfare plans and several 403(b) plans. He is known among colleagues and clients as dependable and knowledgeable.

Stephanie Calver, CPA: Stephanie is a Certified Public Accountant in the Tax Department at Maner Costerisan. Stephanie has over seven years’ experience and she specializes in Employee Benefit Plan audits and Affordable Housing industries.