Preparing for Your Retirement Plan Audit

Are you preparing for your company’s first retirement plan audit? Has it been several years since your last retirement plan audit? Maybe your employee count is low enough that you don’t even need an audit yet. Whatever your situation, it is important to understand the operations of your plan and what controls should be in place. Following are the biggest pieces to consider when going through a plan audit.

Service Providers and SSAE 16 Reports

Your plan’s service providers may include custodians, trustees, investment advisors, record keepers, payroll providers, actuaries, valuation experts, etc. Whatever their role, these organizations are required to provide independent audit reports of their internal controls – otherwise known as SSAE 16 reports (Statement on Standards for Attestation Engagements 16). It is essential to contact your service provider annually to obtain their SSAE 16 report. Review it to identify any exceptions in internal controls and determine what controls the plan sponsor should have in place.

The simplest method for documenting what controls are in place is to create a file that outlines:

• How plan eligibility is determined and how records are maintained to list participants who were informed of their right to participate in the plan
• How deferral elections are updated in payroll
• How and when contributions are deposited to the trust (this includes monitoring the plan’s compliance with the Department of Labor’s (DOL) requirement to deposit deferrals and participant loan payments as soon as administratively feasible.)
• How distributions and loan payments are approved and processed
• What reconciliations are performed to ensure contributions and distributions are processed completely and accurately
• What procedures are in place for participants to report errors and or complaints
• Who oversees the plan and how they are monitored or who they report to (is there a committee that oversees the plan?)
• How fees are monitored and reconciled
• How investments are monitored and reviewed
• Training or resources available for those who are in charge of the day-to-day operations of the plan

Documents to Have on File

You should keep a copy of all documents related to your plan. This includes:

• The current adoption agreement and/or plan documents and any amendments to the plan.
• The opinion letter issued to the plan document sponsor or a determination letter issued directly to your plan. Most plans are using an adoption agreement for a plan document sponsored by their service provider. In this situation, the plan would normally rely on the opinion letter issued by the Internal Revenue Service to the plan document sponsor.
• The current Summary Plan Description and any Summary of Material Modifications to the plan document. These documents are distributed to participants and summarize the provisions of the plan for the plan participants.
• All signed service contracts, investment contracts, and/or insurance contracts. These contracts can be utilized to identify party-in-interest transactions and develop financial statement disclosures.
• If not maintained electronically or in hard copy by the service provider, all participant-signed deferral election forms, investment election forms, distribution forms, and loan forms should be maintained in the participant’s personnel file. Auditors will need to test a sample of participant initiated transactions. They will need the signed forms to test these transactions.
• A copy of enrollment packages and human resource policy and procedure manuals to document controls of the plan sponsor.

Auditor Requirements

Auditors will need various documents depending on materiality and samples selected for testing. Here is a list of some of the additional documents the auditor might request:

• Auditor’s package from the record keeper. It is essential for timing of the audit to find out when the record keeper will have the auditor’s package available. This package usually consists of:

Trust statements

Signed certification (see below)

Participant level reporting

Contribution list by participant

Distribution list by participant

Listing of participant loans

Draft Form 5500

Compliance testing

• An employee census which would include all employees who worked during the plan year. This census should list each employee’s:

Date of birth

Date(s) of hire

Date(s) of termination, if applicable

Plan compensation (The plan document will define what is included and excluded from gross wages for calculating contributions.)

Deferral contributions

Roth contributions

Matching contributions

Any other employee or employer contributions

• Payroll reports that cover the plan year. If participant’s change their deferral percentage during the year, the auditor may need to request additional reports for those participant transactions selected for testing.
• Schedule of contributions by payroll date and the date they were submitted to the plan.

Full Scope or Limited Scope Audit?

What’s the difference between a full scope and limited scope audit? A limited scope audit can only be performed when a certification is provided by a bank, trust company, or insurance company that is regulated by a state or federal agency. They must certify to the completeness and accuracy of the trust statements they are providing. This certification allows the plan sponsor to request the auditor not perform auditing procedures related to the investments and investment income of the plan. The auditor would still need to test participant level transactions. The advantage of a limited scope audit is primarily cost. Because the auditor won’t be performing audit procedures for investments and investment income, audit fees are typically lower.

A full scope audit would require the auditor to perform audit procedures on investment, investment income, and participant level transactions. Due to the additional audit procedures required, the cost to perform a full scope audit will be higher. There may be reasons to have a full scope audit performed even when a certification can be provided by the service provider.

Don't Go it Alone

This level of detail may seem overwhelming. Kruggel Lawton professionals have assisted hundreds of clients who have plans ranging in size from $500,000 to $300 million. We’ll help you prepare for the audit, provide guidance on how to review an SSAE 16 report, and work with you and your service providers to ensure an efficient and timely audit. Give us a call or send us a message! You can also learn more about our Employee Benefit Plan Audit services here.

Written by: Steve Beasy, CPA - Partner
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Phone: 574.264.2247, x333