This article was written by Brandon Wheeler, CPA, Principal.
As the employee benefit plan audit season begins to kick into high gear, the fiduciary responsibilities of plan management or those charged with governance will be changing. The required adoption of Statement on Auditing Standards (SAS) 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, increases the audit requirements and impacts the level of effort and involvement of Plan management and those charged with governance, starting with the calendar 2021 Plan year. Below are some of the important things to prepare for going into your employee benefit plan audits this year.
Management or those charged with governance are required to maintain a current plan document, including all plan amendments. For the upcoming audit cycle, it will be important to have, readily available, the plan document(s), adoption agreement(s), and any new amendments since the initial adoption of the plan at the very beginning of the audit. Although these may have been provided in the past, you will be asked about new amendments and a listing of operational changes for which no amendment have been finalized. It is important to make sure all plan documents and amendments are properly executed with appropriate signatures.
With the adoption of SAS 136 the eligibility of an ERISA Section 103(a)(3)(C) audit, formally known as a limited scope audit, becomes the responsibility of plan management. You will be responsible for determining that the investment information is prepared and certified by a qualified institution under 29 CFR 2520.103-8. A qualified institution is defined as a bank or similar institution or insurance carrier which is regulated and supervised and subject to periodic examination by a State or Federal agency. You will be responsible for verifying the certified investment information is appropriately measured, presented, and disclosed. With these new requirements over the certification of investments, you will be asked how it was determined that the entity preparing and certifying the investment information is a qualified institution. You will also notice new and updated language in the engagement letter and management representation letter to acknowledge all conditions have been met and that an ERISA Section 103(a)(3)(C) audit is permissible.
There will be a heightened awareness to communicate reportable findings with those charged with governance. A reportable finding is any instance of noncompliance with laws and regulations, significant findings or issues that are relevant to those charged with governance regarding their responsibility to oversee the financial reporting process, or a control deficiency, typically a significant deficiency or material weakness, identified during the audit. Some examples of reportable findings are non-timely contributions, census data errors, misapplication of plan provisions, and insufficient monitoring of the plans service organizations. It is the responsibility of plan management and/or those charged with governance to review the activity of the plan and the controls of the services organizations used. The service organization can include the payroll company, custodian, third party administrator, and any other organizations involved in the transaction or reporting process of the benefit plan. Review of the relevant SOC1 reports of these service organizations by plan management and/or those charged with governance is important. This will allow you to gain an understanding of controls in place at these service organizations and what user entity controls are expected to be in place in your organization to complement them.
Another change that will come with the adoption of SAS 136 is the requirement to obtain and review a substantially complete draft of the Form 5500 prior to the releasing of the financial statements. Management or those charged with governance will be required to provide a final draft of Form 5500 prior to issuance of the financial statements. If changes are made to the form throughout the process, this may require multiple drafts to be provided.
With these changes expected during your employee benefit plan audit this year, it will be important to plan ahead to ensure you have the appropriate procedures and documentation in place. Three important things to do ahead of your audit are to 1) make sure you have all plan documents and amendments available and that they are properly executed; 2) determine if an ERISA Section 103(a)(3)(C) audit is permissible and the appropriate certifications are available and you have reviewed them for completeness and accuracy; and 3) the benefit plan has the appropriate oversight and review procedures in place to ensure the activity during the year is appropriate and in accordance with plan provisions. We recommend that you reach out to your benefit plan auditors to gain a better understanding of SAS 136 and the impact it will have on your audit.
If you need further guidance or have any questions on this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.