Providing your employees with benefits, while positive for both parties, can be a complex and tedious process to manage. As your company grows, this process doesn't become any less complicated. In general, once the number of participants in an employee benefit plan (EBP) reaches 100 or more, you are required by federal law to ensure that the plan is audited. If you're new to this, or even if you're not, the employee benefit plan audit process can be difficult to navigate.

At Delap, we have a whole team of EBP auditors who love what they do. In an effort to make the audit process less intimidating, we've developed some frequently asked questions, and interviewed our team members to help bring you clarity in understanding employee benefit plan audits.

What does an employee benefit plan audit entail?

In addition to satisfying regulatory requirements, an employee benefit plan audit can provide you with peace of mind regarding the plan's assets, and help to assure your employees that their interests are being looked after. Your audit will also provide you with information surrounding whether your plan can actually pay out to employees the promised retirement or health benefits when they are due.

The audit typically addresses the following areas of your EBP:

  • Contributions to the plans from you, the employer, and from employees
  • Distributions to employees and/or retirees
  • Participant loans, if permitted by your plan
  • Expenses paid by your plans
  • Plan investments and income
  • Participant data used to determine eligibility, vesting of benefits, etc
  • Tax regulation compliance and plan qualification concerns
  • Related party transactions

What are the requirements surrounding an EBP audit?

You may be wondering: How do I know if I need an EBP audit? As mentioned above, after the number of participants reaches 100 or more, the plan is generally required by federal law to have an audit.

As part of the obligation to file an annual return/report (Form 5500), your plan administrator, with assistance from the auditors, if needed, should determine the nature of the audit to be performed according to the U.S. Department of Labor's (DOL's) Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 (ERISA).

In many cases, audit procedures related to plan investments may be limited, which can help reduce the cost of the audit.

How do I know if a firm is qualified to do an audit?

*In searching for a firm to perform your employee benefit plan audit, it's important to consider the following:

  • Federal law requires auditors of EBPs to be licensed or certified as public accountants by a state regulatory authority.
  • Don't be afraid to ask your potential auditor for references and proof of certification. Considering the cost of an EBP audit, ensuring that your auditor provides quality audits that comply with ERISA and DOL standards is crucial to your investment.
  • Experience is always helpful in auditing EBPs in particular. This is due to the complex nature of EBPs and the regulations impacting them, and the years of specific, relevant experience it takes to understand their implications.
  • You should ensure that your auditors have no financial interest in your EBP, so their ability to objectively evaluate your plan is not compromised.

How often do I need to do an audit?

Generally, the EBP audit is required to be performed annually, as long as the number of participants is 100 or more as of the beginning of the plan year.

Despite the time and resources spent on the EBP audit, your company should realize the benefits of a more efficiently and effectively managed plan. An audit of your plan may even help you save money, by cutting unnecessary costs or identifying costly plan compliance issues.

How long does an employee benefit plan audit take?

In an effort to complete the audit by the deadline, it's important to allow at least two to three months for the process, start to finish. Be keenly aware of your deadline and timetable, and take necessary steps to plan ahead to reach your goal.

Below is a suggested sequence of steps to take once you find out your deadline:

  1. Determine the amount of time available before your deadline, and develop a list of checkpoints to meet. (For EBPs, Form 5500 – and the accompanying audited financial statements of the plan – are initially due by the end of the seventh month of the following year (July 31 of the following year for calendar year-end plans), although 75-day extensions to October 15 are routine.)
  2. Identify two to three firms, based on referral if possible, to interview to become your potential auditor.
  3. After selecting your audit firm, establish a timeline with all service providers and begin gathering information your auditor will need to complete the audit.

Choosing the right firm to take you through the complex EBP audit process can make this part of your life much easier. Our dedicated employee benefit plan team at Delap has extensive experience auditing a wide variety of employee benefit plans. We assist in interpreting Plan Documents, advising plan administrators, and helping implement best practices for plan operations. We would love to help you through any questions you might have regarding your plan.

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Additional Resources

Fidelity: Understanding Form 5500

Paychex: Form 550 FAQ

*United States Department of Labor (1996). Selecting an auditor for your employee benefit plan.