Retirement Plan Audits – Indianapolis (IN)

Your employee benefit plan auditor is going to look for compliance documentation and how your documentation aligns with Department of Labor (DOL) rules. You can start by collecting the documentation your auditor will need:

1. Plan document
2. Adoption agreements
3. Plan amendments
4. Determination letter
5. Annual plan level recordkeeping reporting
6. Annual payroll reporting
7. Annual nondiscrimination testing
8. Meeting minutes related to the plan
9. Plan-related correspondence with the IRS and/or DOL

1.      Planning and engagement

Once you’ve engaged your employee benefit plan auditor (usually by signing of an engagement letter), your audit team will meet with the plan administrators to understand the plan’s structure, controls, and operations. Timing and overall expectations are also determined during the planning phase.

2.      Risk assessment and understanding the plan

In the next phase, they’ll review the materials you’ve assembled and conduct a risk assessment, including assessing your internal controls over participant data, contributions, and benefit payments, and identify areas at higher risk for misstatement or non-compliance.

3.      Testing and fieldwork

Next up, testing and fieldwork. The audit team will conduct participant testing (eligibility, contributions, loans, and distributions), investment testing (valuation and income recognition), contributions and remittance testing to ensure timely deposits and proper classification, and conduct compliance checks with plan terms and ERISA requirements. They’ll also sample transactions and review supporting documentation.

4.      Reporting

In this phase, the auditor prepares audited financial statements to be attached to your organization’s Form 5500 filing and issue an audit opinion – unmodified or “clean,” indicating the financials are fairly presented, modified (if exceptions are identified), or a disclaimer. That last one doesn’t happen often – when it does, it’s usually due to insufficient records.

5.      Communication and follow-up

The auditor will issue a management letter (if applicable) detailing findings and recommendations for process or control improvements, answer questions from the plan sponsor or third-party administrators (TPAs) and assist with Form 5500 filing deadlines (for calendar year-ends that’s July 31^st, with extensions to October 15^th, if needed).

It probably won’t surprise you that the answer is “it depends.” On what? Plan complexity, the responsiveness of the plan sponsors and any TPAs, and auditor scheduling. 4-6 weeks is a good basic ballpark, but it’s a really good idea to start early.

The four errors we see most often are in participant eligibility, eligible compensation, timeliness of remittances, and incorrect contributions (employee deferrals or employer contributions). Here’s a little more on each:

Participant eligibility

Many employers now include an auto-enrollment feature, which is a great way to get employees started. We sometimes see employers entering employees too early or too late – or even not at all. All of those are problematic. Auto enrollment must align with what the plan document says.

Eligible compensation

Another common error is confusion around eligible compensation. Many employers may pay their team in a variety of ways, but when it comes to making plan contributions—like employee deferrals, company matches, or profit sharing—it all must line up with what’s defined in the plan document. That’s why it’s so important to take a close look at what counts as eligible compensation to ensure everything’s calculated correctly.

Timely remittance

Timely remittance is a common error as well, and it’s a big, big deal for the DOL. The DOL requires that deferrals be deposited as soon as administratively feasible—intentionally not providing a bright line. They want the money working for the participant as soon as possible, and they don’t want the plan sponsor to use employee-withheld money to potentially fund operations. And if you don’t remit in a timely manner? There are some pretty steep penalties. You don’t want to go there.

Incorrect employee deferrals or employer contributions

Another common error is incorrect contributions, and there are different causes for that, including incorrect administration of auto enrollment, incorrect definitions of compensation (e.g., including or excluding bonus compensation), or incorrect deferral percentage.

How are errors corrected?

When errors are identified, the plan sponsor is generally responsible for making the participant whole including up any lost earnings that would have accrued during the period affected by the error.

The DOL’s Voluntary Fiduciary Correction Program (VFCP) allows employers and plan fiduciaries to voluntarily correct specific violations of the Employment Retirement Income Security Act (ERISA) without incurring civil enforcement action or penalties. Like the name says, the VFCP is designed to encourage voluntary compliance, protect participant benefits, and restore losses or profits made by the plan or its fiduciaries.

The DOL offers a helpful online calculator to estimate these lost earnings based on the timing of the missed contributions.

There are some pretty serious consequences, including the DOL rejecting your Form 5500 filing, DOL penalties of up to $2,500 or more per day, IRS penalties, and potential plan disqualification (and if that happens? Attracting and retaining talent is going to get a lot tougher).

Glad you asked. There are seven key factors you should consider in selecting your employee benefit plan auditor.

1. Specialized experience with employee benefit plans – It’s important to choose a firm that specializes in employee benefit plan audits – not just general financial statements, because employee benefit plans have unique rules and reporting requirements. An auditor who specializes in employee benefit plans will know ERISA and DOL regulations, Form 5500 filing requirements, common pitfalls in plan operations, and the nuances of 401(k), 403(b), and pension plans. Ask how many benefit plans audits the firm performs annually – the DOL recommends choosing a firm that audits a significant number of plans each year, noting that firms with fewer audits may have higher deficiency rates. (Barnes Dennig conducts more than 180 benefit plan audits per year, if you’re wondering).
2. Membership in the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) – The American Institute of Certified Public Accountants (AICPA) established its Employee Benefit Plan Audit Quality Center (EBPAQC) in 2004 as part of the profession’s response to growing concerns about audit quality in the area of employee benefit plans, which are subject to specialized rules under ERISA and intense oversight by the DOL. Membership in the EBPQAC demonstrates the firm’s commitment to quality and continuing education in this specialized and important area of practice.
3. Strong understanding of ERISA and DOL requirements – Speaking of ERISA and DOL requirements, your employee benefit plan auditor should have expertise in ERISA Section 103(a)(3)(C) audits (formerly known as limited-scope audits.). You should also ask about compliance procedures and how they stay up to date on DOL and IRS regulations, and ensure they have a deep understanding of the Form 5500 filing requirements.
4. Proven audit quality and methodology – A very important question to ask your prospective employee benefit plan auditor is their approach to risk assessment, sampling, and internal control evaluation. They should also be able to articulate how they tailor their procedures to your plan’s unique features – and unique risks. Make sure you have a clear picture of their audit workpaper documentation and reporting processes – they should be thorough and transparent.
5. CPA firm peer review – Every three years, CPA firms must undergo a peer review. Your prospective auditor should be participating in this program and have a clean or “pass” rating as that’s a tremendous indicator of audit quality. Ask to see a copy of their latest peer review letter, which will be issued by the peer reviewing firm. (In 2024, For 11 straight reporting periods covering 33 years, Barnes Dennig received the highest possible rating from the AICPA).
6. Reputation and references – We live in a review-driven world – we don’t choose hotels or restaurants or even the next book we read without seeing what others have to say. Your employee benefit plan audit shouldn’t be any different. Ask for references from clients with similar plans (bonus points if they’re also in your industry). Client testimonials are helpful as well. Check with the DOL for any DOL enforcement actions or disciplinary history involving your prospective auditor.
7. Cost versus value – Price is a consideration, of course. But it should never compromise quality. Inadequate audits can lead to significant penalties and rejected Form 5500 filings – which will cost you more in the long run. A lot more. Make sure the firm provides clearly defined scope, deliverables, and timeline, preferably with a flat fee offering and details on how any significant variances in scope will be addressed.