Preparing For an Employee Benefit Plan Audit

Jul 14, 2015Audit & Assurance, Business, Employee Benefit Plans

Each year many companies are required to undergo an employee benefit plan (EBP) audit. This audit is required under federal law to ensure the plan functions, operations and processes are in compliance with established regulations. Unfortunately these audits do not always go smoothly because the plan sponsor does not always understand what documentation, information and financials are required for the audit. To help clients, prospects and others streamline their EBP audit process, Smith Schafer has provided a list of steps below to help companies prepare for their EBP audit.

Who Needs an EBP Audit?

According to the Department of Labor, if the number of qualified employees has changed in the last year, the rules governing the employee benefit plan may require changes, too. An EBP audit is generally required if the company has more than 100 eligible EBP participants on the first day of the plan year. For certain “large plans,” audited financial statements must be submitted annually along with Form 5500.

The plans that may require an audit include:

  • 401(k) plans
  • 403(b) plans
  • Defined contribution plans
  • Defined benefit plans

Eligible participants include those who are:

  • Currently employed by the plan sponsor (whether they participate or not)
  • No longer employed by the plan sponsor (i.e. retired or separated from the company), but still have assets in the plan
  • Deceased, but their beneficiaries have assets in the plan or are receiving/entitled to receive benefits

Preparing for an Audit

Below is a series of steps which can be taken to prepare for the audit.

  • Become familiar with the details of the plan. Understanding all the provisions and adoption rules in the plan will help you ensure compliance throughout the year and worry less about the eventual examination.
  • Keep meticulous records. Auditors will require detailed participant information, such as date of birth, hire and termination dates, compensation, and schedules for investments and contributions. Ideally, you will keep all applicable data in a software program that will allow you to pull records by various fields (by person, level, earnings, etc.) and even create custom reports. This will help you gather the necessary data that might be requested by an auditor when the time comes.
  • Have a systematic and thorough filing system. Consider filing plan filing on a per-payroll basis and also on a fiscal-year basis. Place all plan committee minutes, memos, amendments, summary plan description and annual reports, investment policy statements, contribution details, and other pertinent documents into those files. This will help you locate items that are almost always requested (i.e. payroll registers) quickly and easily.
  • Plan to supply the auditor online access to the plan record keeper. This will improve efficiency during the audit process and reduce the amount of requests made of your firm.
  • Look for any potential errors in advance. Compare your financial statement to Form 5500 to catch and resolve any discrepancies prior to the audit.
  • Know what will be asked of you during the audit. You can request a letter from the auditor to specify the data they will need and in what format. Along with ensuring compliance of the administration of the plan, audits typically examine investment results, payroll records, employer and employee contributions, distribution of benefits, participant loans, payment of expenses, prior 5500 filings, and other significant agreements or correspondence related to the plan.

Contact Us

The best way to ready your firm for an EBP audit is to prepare throughout the year by keeping detailed records and conducting self-audits at regular intervals. If you would like more information or if you are seeking an experienced team that specializes in EBP audits, Smith Schafer wants to help! We can take a second look at your current plan and fees at any time. Click here to contact our Employee Benefit Services Group for additional information.


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