The Importance of Hiring a Quality Employee Benefit Plan Auditor

When an organization moves from having a small retirement plan to a large one, the Employee Retirement Income Security Act (ERISA) generally requires a retirement plan with 100 or more participants to have an audit of their plan performed by an external auditor. The purpose of the process is to make sure the retirement plan is operating according to plan guidelines and rules, complying with state and federal laws, and actually depositing the correct amount in each employee’s retirement account. It’s wise to not wait until the company hits the 100 employee mark to start planning for the audit.

Evan Dickens, a partner with Jones & Roth CPAs and Business Advisors, recommends that businesses start exploring the requirements when they reach around 80 staff members. That gives them time to determine when they will need the first audit, find a qualified CPA firm, and start pulling together all the necessary paperwork.

Jones & Roth partner Jon Newport, CPA acknowledges that an audit can sound like a burden. However, he encourages companies to think of it as an opportunity. It gives them a chance to double-check that everyone really is receiving the money owed to them. “We’re doing it for the benefit of the participants,” he says. “They’re the stakeholders we’re most concerned with.”

 

Hiring the Right Audit Firm is Key

Most companies will need their first benefit plan audit when they reach 100 employees, but this can vary based on the plan. And while a company may choose to pose this initial question to their existing auditor, don’t assume their firm is the best choice to perform the benefit plan audit. The U.S. Department of Labor (DOL), the government agency that requires the audits, shares the following on its website:

“One of the most common reasons for deficient accountants’ reports is the failure of the auditor to perform tests in areas unique to benefit plan audits.”

There are a lot of technical details the auditor must understand in order to complete the audit correctly. In fact, the DOL goes on to say that if a professional who is unfamiliar with these types of audits performs the review, that person should have an experienced benefit plan auditor review his or her work.

It makes sense to look for a company that specializes in the area. Jones & Roth is one example. They have established a niche practice in benefit plan audits and now have seven staff members devoted exclusively to working on them.

“We’ve made this area a focal point. It’s not just an afterthought for us,” Dickens says. Staff members within the niche are experts at reviewing the common 401(k) plans, but they’ve also worked with many defined benefit, employee stock ownership, 403(b), and health and welfare plans. A lot of other CPA firms won’t touch these more unusual, highly technical plans because they don’t have the expertise, Dickens notes. Jones & Roth is based in Oregon and performs more benefit plan audits than any other firm headquartered in the state.

 

Establish Good Communication Between All Partners

During the initial stages of the benefit plan audit, it’s essential to establish good communication between the business’s plan administrator, the CPA firm and the TPA. The audit team needs access to a wealth of documents including payroll records, personnel files, and other human resource data. “It can be a little intrusive for companies that are going through this for the very first time,” Dickens says, “but our focus is on making the first-time process as gentle as possible.”

It’s a good idea to make sure the CPA firm won’t wait until the last minute to complete the audit. October 15 is the deadline for TPA’s to submit all documentation to the Department of Labor. Many CPAs tend to submit their audits to the TPA on October 14. Jones & Roth’s staff always aims to finish theirs by September 30. Another way to glean more value from the audit is to see if the CPA firm can share any best practices or advice for improving the plan’s administration. Dickens and his staff try to do this with all their clients. “Companies want to do the right thing for their employees. They care about things like best practices and internal controls. We want to give them some confidence that they’re doing things the best way.” The right firm may even have other helpful resources they can make available. Since Jones & Roth has its own retirement plan administration practice, Newport says that he often calls his colleagues when his clients have questions they’ve struggled to get their TPA to answer. “We can get them a much quicker, real-time, basically free response to a simple compliance question,” he says.

 

Making a Positive Impact

Dickens notes that he’s never identified a case where a retirement plan was trying to steal from its employees. But mistakes can happen, especially as retirement plans grow, which is why the audit requirement exists. “I can think of multiple occasions in the last year where we’ve identified that a participant received less of a contribution to their retirement plan than they should have. Sometimes it’s a relatively material amount. I’ve found cases where individual participants were shorted by four figures or more.”

Catching those errors is what Dickens says he likes best about his job. “I really enjoy the chance to make a positive impact on someone’s retirement account. When I’m able to correct those mistakes I feel like I’ve done some good.”