Employee Benefit Plan Audits: What You Need to Know and When You Need One

  • Article

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. 

What’s an employee benefit plan 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 IRS and Department of Labor (DOL) regulations. 

Which plans have to follow ERISA’s audit requirement? 

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 United States for nonresident aliens and unfunded excess benefit plans don’t require an audit either. Insurance benefit plans fully insured, unfunded or both, are also exempt from the plan audit requirement. 

Who can perform a plan audit?  

Independent certified 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. 

When is a plan audit due? 

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.  

The Setting Every Community Up for Retirement Enhancement Act (SECURE) Acts included changes to the Form 5500 series, so it’s important to work with your employee benefit plan provider and auditor to ensure your compliance.  

When do I need an employee benefit plan audit? 

Your company’s benefit plan generally needs an audit if it has more than 100 participants with balances as of the first day of the plan’s year. This is a recent change as previously, the threshold included eligible participants in plans with a deferral option, such as 401(k) and 403(b) plans. Eligible participants include individuals who are terminated or retired employees who still have plan balances. For a welfare plan, the participant count is based on the number of employees (excluding spouses and dependents) actually participating as of the first day of the plan year; eligible employees who opt out of participating in all of the plan’s welfare benefits are not counted. 

Your company’s plan falls into one of two categories: a large or small plan. A large plan has more than 100 participants, and a small plan has fewer than 100 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.  

The SECURE Act did include a significant change to the participant count methodology for defined contribution plans, which may impact which category your plan falls into and its related regulatory requirements. Under the new methodology, only individuals with an account balance are considered plan participants. The previous participant rule for reporting purposes was that individuals who were actively employed and eligible to participate in a plan were considered a participant, regardless of whether they made contributions. Retired or terminated individuals with an account balance in a plan will still be considered participants for reporting purposes. This new methodology will likely begin categorizing some plans as a small filer using Form 5500-SF, which will also waive their audit requirement.  

Once your employee benefit plan is audited, it needs to be audited annually. But, there are two exceptions to this – the80-120 and the short plan year rules. 

What is the 80-120 rule? 

A plan with 80 to 120 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. 

Does my company qualify under the short-plan-year rule? 

Did your company recently implement or terminate an employee benefit plan? Any employee benefit plans in existence for seven months or fewer 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. 

Here to Help

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.  

Doeren Mayhew's employee benefit plan pros are here to help you navigate plan audit complexities to ensure you’re in compliance and upholding your fiduciary responsibilities. 

Ready to put this brain power to work?

Contact Our Pros

Subscribe for more VIEWPoints