Does my Organization’s Employee Benefit Plan Require an Audit?

Any organization that sponsors an employee benefit plan (EBP) may be subject to an audit that is required by the Employee Retirement Income Security Act of 1974 (ERISA). The determination of whether a plan is classified as a “large plan” or a “small plan,” determines the need for an audit, as all large plans require an audit under ERISA.

Large Employee Benefit Plan Defined

A “large plan” is generally defined as an employee benefit plan (EBP) with more than 100 participants with account balances at the beginning of a plan year. There is an exception known as the “80–120 participant rule.” This rule applies to plans with between 80 and 120 participants at the start of the plan year and allows them to retain the same reporting status—either “small” or “large”—as the prior year.

For example, if a plan had 105 participants at the beginning of the 2023 plan year and was classified as a small plan (and therefore not audited), and it has 115 participants at the beginning of the 2024 plan year, it can still elect to be treated as a small plan and avoid the audit requirement, since both years fall within the 80–120 range.

What are the next steps for a large plan?

If your EBP is classified as a large plan under these requirements, it’s essential for the plan sponsor’s management team to consult with an independent qualified public accountant (IQPA) to determine the necessary next steps for proper compliance and reporting. Doing so helps ensure that the plan administrator’s fiduciary responsibilities are being met. If an audit is required, the resulting audited financial statements and report must be attached to the plan’s annual Form 5500 filing and submitted to the U.S. Department of Labor.

What does the auditor do?

Once it’s determined that your employee benefit plan requires an audit, the plan sponsor must engage an IQPA. The auditor’s role is to evaluate the plan’s financial reporting and operations to ensure compliance with ERISA and Department of Labor requirements, and this is done by:

•             reviewing internal controls,

•             testing participant data and transactions,

•             verifying investment activity, and

•             confirming that the plan is being administered according to its terms.

The auditor then issues a report that must be filed with Form 5500 and may also provide recommendations to improve plan operations or address any deficiencies.

What is the expected timing of an audit?

The Form 5500 filing, along with the required audited report for your EBP, is due seven months after the end of the plan year, with the option to extend the deadline by an additional two and a half months. If this extension is filed, October 15th is the filing deadline for plans with a December 31st year-end. Given the timing of this deadline, it’s pertinent to begin the necessary planning and communication for the audit as soon as possible after the close of the plan year to ensure timely compliance.  Keeping cognizant of this timing is of the utmost importance, as there can be significant penalties if your employee benefit plan audit is not completed by the applicable filing deadline.

Next Steps

Taking a proactive stance and staying abreast of current developments is an essential step to be properly prepared for a successful and efficient employee benefit plan audit. If you have any questions regarding the specifics of a retirement plan audit or any concerns about your plan’s compliance status, please call 215.675.8364 or email us today.

DISCLAIMER: All communications by Wouch, Maloney & Co., LLP intend to provide general information, as of the date of the communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, of the information provided. Please be aware that this is not a comprehensive analysis of the subject matter covered and it is not intended to provide specific recommendations to you or your business with respect to the matters addressed.