How to Prepare for an Employee Benefit Plan Audit

When managing employee benefit plans (EBPs), the audit should never be overlooked. EBPs are a critical component of a company’s benefits package. They are key in attracting and retaining top talent. Ensuring their effectiveness and compliance is essential for the success of any organization. An employee benefit plan audit provides an opportunity to assess the value and accuracy of current benefit offerings, identify areas for improvement, and ensure compliance with regulatory requirements.

The Significance of an Employee Benefit Plan Audit

Employee benefit plans are subject to various rules set forth by the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS), and other regulatory agencies. These policies aim to protect employees and ensure that employers fulfill their obligations to provide benefits to their workforce.

An EBP audit is designed to establish credibility, offer assurance, and assess compliance with these regulations. It provides an independent examination of the plan's financial statements, ensuring it has the necessary funds to support participants.

Additionally, an audit can help organizations identify and address operational weaknesses, enhance internal controls, and make informed decisions regarding plan design and management. It provides valuable insights into the efficiency and effectiveness of the plan's administration, investments, and overall operations. By conducting regular audits, organizations can mitigate risks, enhance plan governance, and demonstrate their commitment to fiduciary responsibility.

Determine if an EBP Audit is Required

Not all employee benefit plans are required to undergo an audit. The decision to conduct one depends on several factors, including the number of plan participants and its specific characteristics. According to the DOL, organizations with employee benefit plans that have 100 or more participants with account balances at the start of the plan year are required to have an independent audit of the plan's financial statements.

However, it's important to note that even if an audit is not mandatory, organizations may still conduct one voluntarily. Voluntary audits can provide additional assurance to plan participants, enhance transparency, and demonstrate a commitment to sound financial management.

Select the Right Audit Team

It's essential to engage auditors who specialize in employee benefit plan audits and have a deep understanding of the unique complexities and compliance requirements associated with these plans. Working with experienced auditors ensures that all critical areas of the plan are thoroughly tested and that any potential issues or deficiencies are identified and addressed in a timely manner.

When choosing an audit team, consider their expertise, track record, and reputation within the industry. Look for auditors who are familiar with your specific type of plan, whether it's a defined contribution plan, a pension plan, a 403(b) plan, an employee stock ownership plan (ESOP), or a healthcare and wellness benefit plan. A knowledgeable audit team can provide valuable insights, recommend ideas for improvement, and help navigate complex regulatory requirements.

Gather and Organize Relevant Documents

Gather and organize relevant documents, including the following:

• The Plan's Adoption Agreement and Plan Document
• Plan Amendments
• Plan Committee Minutes
• Service Agreements
• Non-Discrimination Testing Results
• Other Supporting Documentation

Consider utilizing cloud-based software or document management systems to store and organize these documents securely. This ensures easy access and retrieval of information during the audit process and facilitates seamless collaboration between the audit team and the organization.

Plan and Discuss the Audit Scope

Before the audit begins, have a planning meeting with the team to discuss the scope and objectives. This provides an opportunity to review the documentation, identify any additional information needed, and establish a timeline.

During the planning stage, determine clear lines of communication and designate a point person within the organization who will serve as the primary contact for the audit team. This ensures efficient information exchange, timely response to inquiries, and avoids miscommunication or duplication of efforts.

Prepare for Onsite Fieldwork

The onsite fieldwork phase is when the auditors review the plan's documents, participant transactions, and payroll records and perform testing to evaluate compliance with the plan's provisions. During this phase, the organization must be available and actively involved in the audit process.

Organizations should be prepared to provide additional information or clarification as requested by the auditors. Regular communication and collaboration are essential to ensure a smooth and efficient audit process.

Stay Informed and Compliant

An employee benefit plan audit is not a one-time event but an ongoing process.

• Stay informed of changes in regulatory requirements, industry best practices, and emerging trends in employee benefits.
• Regularly review and update your plan documents, policies, and procedures to ensure compliance and alignment with organizational goals.
• Continually assess the plan's performance, solicit feedback from plan participants, and proactively address any issues or concerns that arise.

By staying proactive and responsive, organizations can ensure that their employee benefit plans remain competitive, compliant, and valuable to their workforce.

Need Assistance? Lutz’s Employee Benefit Plan Audit Services Can Help

By taking the steps outlined above, your organization can not only streamline the audit process but also enhance the effectiveness of your EBP. At Lutz, we take pride in offering top-tier Employee Benefit Plan services. If you have any questions, please contact us.