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A BUYERS GUIDE
for your Benefit PlanRIGHT AUDITOR
This guide provides a general outline of what to consider when hiring an auditor. Clark Schaefer Hackett advisors can provide additional insight into how a properly conducted audit, and an ongoing relationship with your audit firm, can benefit your organization.
Plan Audits: A Buyers Guide Hiring the Right Auditor for your Benefit PlanCopyright 2015
Published by Clark Schaefer Hackettcshco.com
All rights reserved. Except as permitted under U.S. Copyright Act of 1946, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher.
A BUYERS GUIDE PLAN AUDITS:
Time to evaluate
Clark Schaefer Hackett created this buyers guide to help you and other plan
fiduciaries make an informed decision when hiring a quality auditor for your
employee benefit plan audit.
According to federal law, sponsors of large employee benefit plans are required to
complete an audit as part of their fiduciary duties. However, a quality audit doesnt
begin or end with this requirement. The auditor-sponsor relationship needs to be
more comprehensive, going beyond problems identified via an audit by delving into
A willingness to work year-round to solve the common problems of plan
administration is the hallmark of a skilled auditor. This guide will detail the
importance of a quality auditor, the risks associated with a poor quality audit, and
how you can identify the best auditor for your plan.
You have fiduciary responsibilities
When does a plan need an audit?
Its all about quality
Saving you from errors
Traits of a quality auditor
Finding the right auditor
What sets Clark Schaefer Hackett apart?
Auditors should add value
Table of Contents1
You have fiduciary responsibilities As outlined by the Employee Retirement Income Security Act (ERISA,) plan
fiduciaries include any individual named in the plan document as a fiduciary and
those who have discretionary authority over plan management or plan assets. Plan
fiduciaries have a standard of conduct and various responsibilities imposed by
These responsibilities include:
Acting in the best interest of the plan participants
Acting with care, skill, prudence and diligence
Avoiding prohibited transactions
Following plan documents
Hiring service providers
Monitoring investments and fee reasonableness
When hiring a service provider for day-to-day operations, ask the provider for:
An overview of the firm
The firms services and experience with benefit plans
The firms business practices
Identity and experience of the team servicing the account
1 Plan Audits: A Buyers Guide
When monitoring the service provider, your responsibilities include:
Evaluating service provider performance
Comparing fees to the service agreement
Following up on any complaints from participants
Note that the plan sponsors responsibility is not always to find the lowest-cost
provider. Instead, the responsibility is to evaluate the providers quality and level of
service and compare them against the fees. Hiring the right expert is paramount in
order to protect the plan and the fiduciaries.
The U.S. Department of Labor has a number of guides and resources about fiduciary
responsibilities and ERISA. See Resources A and B, page 16.
How do you protect the
plan and the fiduciaries?
Plan Audits: A Buyers Guide 2
When does a plan need an audit?In general, an audit is required when an employer has a qualified benefit plan with
more than 100 active participants at the beginning of the plan year.
Active participants include:
Eligible participants those meeting eligibility requirements
regardless of plan participation
Termed and retired participants
Beneficiaries of deceased participants
Plans with more than 100 participants are usually considered large plans, while those
with fewer than 100 are considered small plans.
Qualified plans must file a Form 5500 annually and will file as either a large or small
plan. ERISA requires large plans to attach audited financial statements to the Form
However, plans that fluctuate over and under 100 participants arent required to
switch categories. This is called the 80-120 participant rule.
Plans that have within 80 and 120 participants can opt to stay in the same category
as in the prior year, while plans under 80 participants file as small and plans over
120 file as large.
3 Plan Audits: A Buyers Guide
The categorization of large or small plan isnt always set in stone. In fact, a plan
sponsor has the ability to manage the number of plan participants. Certain plan
provisions and hiring decisions can impact the categorization of the plan as large.
Here are a few plan aspects to examine:
Terminated participants You can make automatic benefit payments to
terminated participants with nominal balances to reduce the participant
count. Follow plan document provisions or amend your plan to set a
threshold of automatic cash-out balances (e.g., $1,000 or $5,000). Then, the
participants balance can be distributed, rolled into another qualified plan or
placed in an IRA without having to track down the participant.
Eligibility requirements Consider a high-turnover workplace, where its
somewhat common for employees to leave within their first six months of
employment. Even if they are not actively deferring into the plan, these
employees can still count toward the size of the plan. One way to manage
this is to consider amending your eligibility requirements so that employees
must have six months of service before they can participate. This can
reduce overall plan counts and administrative burden.
Count projections Use the 80-120 rule to your advantage. If you hover
around 100 participants, it may be more cost effective to remain a small or
large plan, instead of bouncing back and forth - needing an audit one year
and not the next.
Plan Audits: A Buyers Guide 4
Its all about qualityAn audit provides a third-party, independent report summarizing the plan activity,
investments and provisions, which enables the plan sponsor, participants and
regulators to assess the plans ability to pay future benefits to participants. A quality
audit enables plan fiduciaries to execute fiduciary responsibilities and demonstrate
During a plan audit, the auditors gain an understanding of plan controls and conduct
compliance tests of critical plan provisions such as eligibility, employee/employer
contribution calculations, timeliness of contribution remittances, loans and benefit
payments. Plan auditors also review tax filings and non-discrimination testing results
that are required for the plan to maintain a qualified status.
Here are ways a qualified audit team can help a plan sponsor:
Recommending plan control improvements or process efficiencies
Identifying operational errors to ensure participants are receiving promised
Assisting with error correction
Delivering regular accounting and regulatory updates
Providing IRS or DOL audit assistance
Presenting audit information at trustee meetings
Offering access to national benefit experts
In short, a quality audit reduces risk and offers plan fiduciaries peace of mind.
5 Plan Audits: A Buyers Guide
Completing and attaching the audited financial statements to a large plans Form
5500 filing is a fiduciary requirement. But plan sponsors need to be focused on more
than just compliance. When you take your eye off of quality, you put yourself at risk.
Plan sponsors are at a higher risk of the following as a result of an incomplete,
inaccurate or untimely audit:
Fines (for which fiduciaries have personal liability)
Unidentified plan operations failures
Missed cost savings
A poor quality audit can lead to rejection of the Form 5500 filing by the DOL, or
additional scrutiny of your plan by regulators due to inaccurate reporting.
When you take your eye off
quality, you put yourself at risk.
Plan Audits: A Buyers Guide 6
Saving you from errorsPlan administration can be complex and cumbersome, so its not surprising that
errors can surface. And if audited by the IRS or DOL, correcting identified errors is
generally more costly and time consuming than having a qualified auditor discover
and help management correct them at the outset.
Here are the four most common errors identified during plan audits:
1. Delinquent remittance of employee contributions - Delinquent remittance
of employee contributions is a prohibited transaction and has to be reported
separately to the DOL. Partici