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VIEWpoint Issue 1 | 2023
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4 Ways to Prepare for Next Year’s Audit
If you offer a benefit plan to your employees, you may be required to have the plan audited. The Employee Retirement Income Security Act of 1974 (ERISA) sets this requirement. But, how do you know when your company needs an employee benefit plan audit? Doeren Mayhew’s experienced plan auditors outline what a plan audit is, the value it can bring to your company and when you need an audit.
An employee benefit plan audit is an audit of the plan’s financial statement. This audit reports the plan’s financial standing and general information about the plan.
A plan’s audit also can highlight opportunities for improvement within plan operations, efficiency, controls, and how well the plan complies with Internal Revenue Service (IRS) and Department of Labor (DOL) regulations.
Defined contribution plans (including 401(k), 403(b) and employee stock ownership plans), as well as defined benefit pension plans and health plans, are all subject to ERISA.
Few plans are exempt from ERISA’s audit requirement. Exempt plans include governmental plans, church plans, and plans established and maintained to comply with workers’ compensation, unemployment compensation or disability insurance laws. Plans maintained outside the U.S. for nonresident aliens and unfunded excess benefit plans don’t require an audit either.
Independent public accountants, like those at Doeren Mayhew, are the only professionals qualified to perform employee benefit plan audits. Once completed, the annual audit is attached to the Form 5500 (Annual Return/Report of Employee Benefit Plan) form filing.
This Form 5500 filing is due seven months after the plan year ends. If your plan year ends on Dec. 31, you must submit Form 5500 by July 31. You can request a 2.5-month extension if needed, making the new deadline Oct. 15.
Your company’s benefit plan generally needs an audit if it has more than 100 eligible participants. An eligible participant for a retirement plan is an employee of your company who meets plan eligibility requirements at the beginning of the plan year. This includes individuals who choose to opt-out of the plan, as well as terminated or retired employees who still have plan balances. For a welfare plan, the participant count is based on number of employees (excluding spouses and dependents) actually participating as of the first day of the plan year; eligible employees who opt out of participant in all of the plan’s welfare benefits is not counted.
Your company’s plan falls into one of two categories: a large or small plan. A large plan has more than 100 eligible participants, and a small plan has fewer than 100 eligible participants. Your plan’s size is based on how many eligible participants it has at the beginning of the plan year. Typically, small plans don’t require an audit.
Once your employee benefit plan is audited, it needs to be audited annually. But, there are two exceptions to this – the 80-120 and the short plan year rules.
A plan with 80 to 120 eligible participants on the first day of the plan year can file Form 5500 in the same category (large or small plan) as the previous year according to DOL regulations.
Did your company recently implement or terminate an employee benefit plan? Any employee benefit plans in existence for seven months or less can generally delay, but not eliminate, ERISA’s audit requirement until the following year. Your plan could be affected by this rule if it was just created, the plan year changed, or your company went through a merger.
If you’re a plan administrator, it’s important to become familiar with these rules as part of your fiduciary responsibilities. Failing to comply with ERISA audit standards can result in serious penalties. Contact Doeren Mayhew’s plan experts to help you navigate plan audit complexities to ensure you’re in compliance and upholding your fiduciary responsibilities.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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