The purpose of an Employee Benefit Plan (EBP) audit is to determine whether a 401(k), pension, profit-sharing, or other benefit plan complies with the IRS and Department of Labor (DOL) regulations. An EBP audit is performed by an independent third party and provides credibility that an organization’s plan will have the funds available to pay benefits to participants when it is time to pay them. Although any audit can be a complex and possibly stressful process, Avizo’s team has taken measures to make the audit process as efficient and painless as possible.
When to Get an EBP Audit
As noted in a recent post, the determination for whether your Employee Benefit Plan needs an audit is changing in 2024 for the 2023 EBP audit. Going forward, the calculation for number of participants will NOT include inactive but eligible employees. However, the 100-person threshold that requires an audit remains. This means if your EBP has 100 or more active participants, you’ll need to continue to get an audit.
If your organization meets the 100-active participant threshold to require an Employee Benefit Plan audit, you will have to go through this process every year. An EBP audit is typically due with your organization’s annual tax return and is eligible for extension filings given the calendar specifications of your plan.
What is Examined in an EBP Audit?
The goal of any audit is to examine an organization’s financial statements to determine whether they contain any material misstatement that may result from fraudulent reporting or unintentional errors. part of the Form 5500. An example of a potential error that could be discovered in an EBP audit is that an auditor notices a lack of timely deposits of the participant deferrals.
The Department of Labor will consider the audit report for judgment on the accuracy and material fairness of information submitted. The American Institute of Certified Public Accountants (AICPA) sets the standard for what an employee benefit plan audits should cover, which includes these eight items:
Benefit payments
Employer and employee contributions
Investments and investment income of the EBP (in a full scope audit)
Administrative expenses
Data of participants
Loans to participants
Allocation of participants, if applicable
Plan obligations and liabilities
How to Prepare for an EBP Audit
Preparation is important for a successful 401(k) audit. Our team will to proactively communicate with you to set timelines and send you a list of requested documents to ensure your audit is resource- and time-efficient for your staff and your organization. Here are a few things you can do to make the process easier.
1. Gather Relevant Documents
The required documents for a 401(k) audit include:
- Executed plan document, which includes the executed adoption agreement or volume submitter plans
- IRS determination for the executed plan document
- Historical and current plan summaries and descriptions of material modifications
- Executed amendments to plan documents
- Executed Board minutes related to the plan
- 401(k) minutes of the executive committee or other governing committee
- Employee documentation pertaining to deferral elections and changes
- Recordkeeping and trust agreements with plan recordkeeper and custodian
- Copy of FERISA bond insuring the plans assets
- Loan and distribution request information
- Other significant correspondence or agreements pertaining to the plan
2. Review your Internal Controls
Internal Controls are the measures your organization has in place for internal operations to increase efficiencies, protect against liability, and remain in compliance with regulations and laws. Successful management of a 401(k) plan organization requires accurate and appropriate documentation and reporting of your financial-related processes. You can prepare for an audit by reviewing your Internal Controls procedures and documenting any instances when you or someone else had to divert from the designated processes.
Avizo Assurance Services
Our assurance team is well-versed in Employee Benefit Plan Audits. If you are looking for an auditing team or if you just have questions, we are available to discuss them with you. Please just click the button below to send us a message.
Kirsten Robertson
A Strategic Analyst on our assurance team, Kirsten maintains expertise to provide auditing services with a specialization in Avizo’s governmental and construction-based niches. She is one of the primary leads on our in-field audits and completes training for all members of the firm before they visit clients offices.
