Audits: The Devil is Always in The Details

Retirement plan advisors, it’s audit season! watch the video below and join a unicorn auditor, seasoned TPA expert and data driven recordkeeper for an educational hour of what's new in the retirement plan audit space. See the latest legislative changes, check out sales tools for mining a Form 5500 for new prospects, and receive an Auditor RFP for you to customize to your practice and brand to provide to your business owners to help them complete the due diligence for a retirement plan auditor so they are able to get into the details and choose wisely!

• Ekaterina Sheliga, National Accounts Sales Director, The Standard
• Trey Galuppi, Business Development Consultant, TRA
• Nathan Johnston, CPA, Partner, Pension Assurance

Summary:

The audit basics encompass various aspects of auditing ERISA plans. Firstly, certain plans necessitate the involvement of an Independent Public Accountant (IPA) to conduct an audit. Seeking guidance from an advisor can be instrumental in steering clients away from audits. The 80/120 Rule, which determines eligibility for participation in retirement plans, is another essential concept with the notion of a Short Plan Year (lasting seven months) holding significance. Governmental and Church Plans, as well as 403(b) Plans, have their own distinct considerations for audits.

Pooled Employer Plans (PEPs) must undergo audits under specific circumstances, requiring audit procedures for each employer within the plan. Streamlining processes and controls across adopting employers is essential in this context. 

In terms of the current ERISA Plan Audit Population, approximately $8 trillion in plan assets are subject to audit, while around 84,000 plans require audits. Although the number of plans subjected to audits may decrease, the dollar amount involved might not see significant changes. Utilizing Form 5500 can be advantageous in identifying large plan remittances. Adhering to the plan document's definition of compensation is crucial, as deviations necessitate corrective action. Failing to include specific information is a common and costly error. Non-Discrimination Testing failures can be frustrating for highly compensated employees (HCEs)but you can leverage Form 5500 to detect NDT failures and assess their extent.

When conducting audits, specific areas require attention, such as Schedule H, line 2f, and the Liabilities section of the Financial Statements, which includes "Excess Contributions payable." Common errors pertaining to 403(b) Plans include issues with universal availability, failure to observe contribution limits, computation errors in 15-year catch-up calculations, and mistakes in required minimum distribution calculations.

A comprehensive list of the most common audit findings:

1. Failure to update the plan document
2. Non-compliance with plan document provisions
3. Inadequate investment selection and monitoring processes
4. Disregarding eligibility requirements
5. Delayed or inaccurate participant disclosures
6. Improper participant loans and hardship withdrawals
7. Insufficient processes for paying vested terminated participants' benefits
8. Incorrect use of compensation definitions
9. Untimely depositing of participant contributions
10. Excessive fees
11. Insufficient fidelity bond coverage
12. Improper valuation of employer stock or illiquid assets

When selecting an auditor, conducting due diligence is crucial. Factors to consider include:

• The auditor's licensing
• Number and types of plans they have audited
• Their level of plan-specific training
• The firm's dedication to plan audits as a percentage of their revenue
• Experience of the auditor's team
• The firm's membership in the AICPA EBP Audit Quality Center
• Whether the CPA has been subject to prior Department of Labor findings

Finally, audit fees should also be taken into account during the selection process.

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