Benefit Plan Audit FAQs: What You Need to Know (and What You May Have Missed)

Navigating the complexities of employee benefit plan audits can be challenging. Here are the most frequently asked questions and crucial details you might have missed.

Navigating the complexities of employee benefit plan audits can be challenging for plan sponsors and administrators. Ensuring compliance with the Department of Labor (DOL) and IRS regulations is critical to avoid hefty penalties and protect participants' retirement savings. To help you prepare, we have compiled the most frequently asked questions about benefit plan audits, along with crucial details you might have missed.

When is an Employee Benefit Plan Audit Required?

Generally, a plan requires an audit if it has 100 or more eligible participants at the beginning of the plan year. However, there is a key exception known as the "80-120 Rule." If your plan had between 80 and 120 participants at the beginning of the plan year and you filed as a "small plan" in the previous year, you may elect to continue filing as a small plan, thus avoiding the audit requirement for that year.

It is important to remember that "eligible participants" includes active employees eligible to participate (even if they do not contribute), retired or separated employees with balances in the plan, and deceased employees whose beneficiaries are receiving or entitled to receive benefits.

What is the Deadline for the Audit?

The audited financial statements must be attached to the plan's Form 5500 filing. For calendar-year plans, the deadline is July 31st. Plan sponsors can file Form 5558 to request an automatic two-and-a-half-month extension, pushing the deadline to October 15th.

What Are the Most Common Audit Findings?

Auditors frequently uncover issues that could lead to compliance failures. Some of the most common findings include:

• Late Remittances: Failing to deposit employee deferrals into the plan trust as soon as they can be reasonably segregated from the employer's general assets.
• Definition of Compensation: Incorrectly calculating contributions by using the wrong definition of eligible compensation as outlined in the plan document (e.g., excluding bonuses or commissions when they should be included).
• Eligibility Errors: Failing to enroll eligible employees on time or allowing ineligible employees to participate.

How Can We Prepare for a Smooth Audit?

Preparation is the key to a successful and cost-effective audit. Start by gathering all necessary documents early, including the plan document, amendments, summary plan description, and service agreements. Reconcile your payroll data with the recordkeeper's reports throughout the year, rather than waiting until the audit begins. Open lines of communication with your Third-Party Administrator (TPA) and your auditor are essential to resolve any discrepancies quickly.

The Value of Experienced Auditors

Employee benefit plan audits are highly specialized engagements. Working with a firm that lacks specific experience in this area can lead to missed compliance issues or an inefficient audit process. At OAK Advisors, our dedicated team has deep expertise in employee benefit plan audits, ensuring a thorough, efficient, and stress-free experience for our clients.