As companies approach the last quarter of a year, there are great high-level questions they can be asking to ensure a successful prior year, as well as a successful future year. These questions can include “How can we cut or control costs?†“Are there time-saving tips we can leverage this time of year?†and “What value can we add to our processes?†These same questions also apply to a company’s employee benefit plan.
Many companies don’t take the time throughout the year to evaluate their plan and any changes that should be made to it. The end of the year is a great time to analyze the plan for any changes that can take place during the next year to minimize costs or add value to the plan. There are five basic questions companies can ask themselves to make sure they understand what needs to happen over the next year.
Question 1
The first question a company should ask is, does the benefit plan need to have an annual audit?
Many companies fall within the parameters of needing an annual audit but are unaware that they do.  Who needs an employee benefit plan audit? Any defined contribution, defined benefit or health and welfare plan with over 100 eligible participants as of the beginning of the plan year are generally required to have an annual audit. These plans are considered to be large plans and are required to complete Schedule H as part of the Form 5500 annual filing.
There are exceptions to the rules that may waive the plan audit requirement. The exceptions relate to certain welfare benefit plans, plans containing insurance contracts, plans with short plan years or plans with participant counts between 80 and 120 participants.
Question 2
When is the audit performed?
The audits are typically performed 5 to 9 months after the plan’s year end and coincide with the due date of the Form 5500 filings. The auditor will typically perform fieldwork at the company’s offices to review various plan documents to make sure the plan is operating properly. They will then issue financial statements to the company along with recommendations for improvements relating to the plan.
What are the due dates? The Form 5500 for a calendar year-end plan is due July 31st of the following year but can receive a 2 ½ month extension, which brings the extended due date to October 15. The audit report mentioned above is attached to, and filed with, the Form 5500.
Question 3
Who should perform the audit? Once you have determined that your organization is in need of a benefit plan audit, the next step is to select a plan auditor. Some things to keep in mind when selecting a plan auditor:
- Experience counts: Does the firm have extensive experience performing financial statement audits for all types of retirement and employee benefit plans (both for publicly traded and privately owned businesses)?
- Look for added value: Do not look at your plan audit as a costly, last minute, once-a-year activity. When conducted by an experienced firm, a plan audit can help you in identifying areas of deficiency and assist you in streamlining your plan.
- After the audit: Once the audit is complete, your auditors should be able to assist with benefit plan design, operation, performance and reporting to ensure your company and your employees are obtaining the maximum possible value from what may be the largest benefit you provide.
- Find a resource: Your auditor should provide you with updates throughout the year, with news and information related to your plan.
- Is the audit firm a member of the AICPA Employee Benefit Plan Audit Quality Center? This resource can be used for training, research and guidance throughout the benefit plan audit process.
Question 4
The next question a company should ask concerns plan expenses. Is the plan paying reasonable expenses?
There are various expenses incurred in the operation of a plan relating to the third party administration fees, loan and distribution fees and investment management and advisory fees. Some fees are paid by the plan and others are paid by the company.
Fees can be broken out separately in the plan or they may be paid through the funds in which the plan invests. These fees should be reviewed to make sure they are reasonable based on the plan size and investment options offered by the plan.
Question 5
The final question relates to the plan’s third party administrator (TPA).
Is the TPA reviewing the plan on a yearly basis to make sure the plan is operating properly? Are there any changes that need to be made to the plan document based on new regulations or a change in circumstances at the company? Are they routinely meeting with the fiduciary and plan participants to make sure they understand the operations of the plan and all of the plan benefits offered to them?
By simply evaluating the questions above, a company will know up front what issues they will be facing relating to their plan over the next year and what changes they should implement now to make sure they are providing a high quality service at a low cost to their plan participants.
Questions about employee benefit plan audits at your organization? Please contact Jessica Bundy in our Audit & Assurance Department at 505.998.3431.
