The Employee Retirement Income Security Act (ERISA) contains a requirement for annual audits of plan financial statements by an independent qualified public accountant, if certain criteria are met.
Plans with 100 or more participants (a large plan which completes a Schedule H) are subject to the audit requirement. Employees are considered participants as soon as they have met your plans eligibility requirements (ie. 1 year of service, reaching the age of 18, etc) – whether or not they have enrolled in the plan. Participant count includes active employees, all eligible employees, and terminated participants who still have plan balances.
The Department of Labor’s (DOL) regulation (29 CFR 2520.104–46) establishes conditions for small employee benefit plans (generally those with fewer than 100 participants) to be exempt from the general requirement that plans be audited each year.
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- 80 to 120 Participant Rule – Under this rule, if the number of participants covered under the plan as of the beginning of the plan year is between 80 and 120, and a small annual report was filed for the prior year, the plan administrator may elect to continue to file as a small plan.
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- Below is a useful tool for determining if your plan can obtain a Small Pension Plan Audit Waiver (obtained from www.dol.gov)
The independent auditor’s responsibility (under generally accepted auditing standards) is to express an opinion on whether the financial statements are fairly presented in conformity with generally accepted accounting principles, and that the related supplemental information is presented fairly, in all material respects, when considered in conjunction with the financial statements taken as a whole. It is important to remember a GAAS audit is not designed to ensure compliance with ERISA’s provisions. Under the law, plan administrators, the IRS and the DOL have responsibility to ensure compliance.
For plans requiring an audit, the audit must be attached to the completed Form 5500 and filed by the plan administrator with the IRS by July 31. An extension for the Form 5500 can be obtained which extends the deadline back to October 15th.
The most common errors include failing to file on time, failing to answer multiple part questions, and not including all required schedules. Failing to provide complete, accurate and timely information can result in penalties for your business, so it is important to understand the law and to determine if your plan requires an audit upfront.
Written by: Katie Schreiner