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Understanding the Employer Responsibility in Administering an Employee Benefit Plan
Many companies are not aware of the requirements and responsibilities regarding administration of their Employee Benefit Plans (EBP). As the fiduciary of your plan, you are required to:
- Act solely in the interest of your plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carry out your duties prudently;
- Follow the plan document;
- Diversify plan investments; and
- Pay only reasonable plan expenses.
As a general rule, federal regulation requires employee benefit plans with 100+ eligible participants to undergo an examination by a qualified, independent auditor. An audit will help you fulfill your responsibility to file complete, accurate and timely annual return/report (Form 5500) for your plan each year, as well as declare that funds will be accessible to pay benefits to participants.
The passage of the Employee Retirement Income Security Act of 1974 (ERISA) placed responsibility for the accuracy of the plan's financial statements in the hands of the plan administrators. Each year since, the rules and regulations governing benefit plan compliance become more and more complex. Further, with the revision of Form 5500 in 2009, many 403(b) plans which were previously exempt from filing are now treated as any other pension plan and are required to comply with reporting requirements. Because of this, many plan sponsors face challenges in ensuring their plans are in compliance with the changing rules. Such changes in accounting and reporting requirements, Department of Labor (DOL) and other governmental regulations, and plan administration promote the need for specialized services.
The selection of your auditor is a serious decision in light of these constant changes. The DOL assesses penalties against the plan sponsor of $1,100 per day up to $50,000 for instances of audit deficiency, so it is essential to hire an experienced and qualified auditor who is knowledgeable about benefit plan regulations and will help to ensure your plans are properly administered.
Areas of Concern and Common Errors
DOL studies in recent years have shown a high percentage of common errors discovered during audits of benefit plans. Changes in plan provisions, accounting principle or estimate, and government regulations are the most common cause of accounting and reporting errors.
We have discovered several common errors in our audits of benefit plan administration in the past few years. Examples include:
- Late remittances made to the plan, which require as correction a calculation of lost earnings and a deposit of monies due to the plan as well as reporting the duration and amount of noncompliance.
- Failing to use the correct amount of eligible wages, as defined in the plan document, which can also lead to calculating lost earnings and deposits to the plan to make participants whole for what is properly due to them.
- Misunderstanding the plan document's definition of eligible employees, hours of service or plan entry dates, which can lead to the failure to include or add employees to the plan as participants in a timely manner.
- Improper calculation of years of service and vesting percentages, leading to employees receiving too much or too little employer match contributions, or failure to withhold the proper forfeiture amount.
The discovery of so many easily-preventable errors is evidence of how critical it is for your plan to undergo an audit by a firm with extensive benefit plan knowledge and experience.
Employee Benefit Plan Experience
At Gunnip & Company LLP, we understand the risks you face in administering your plans. We will not only work with and assist you in understanding and complying with ERISA and DOL regulations, but also seek and recommend ways for you to more effectively and efficiently manage your benefit plans and become a better administrator.
We have a dedicated team of 401(k) and 403(b) plan auditors who possess the specialized knowledge and experience to help ensure compliance with the appropriate standards and changes in regulations that may affect your organization's employee benefit plan audit. Our professionals attend continuing education programs to stay current on updates and new issues and are available at any time to assist plan administrators and sponsors with audit and consulting services. We specialize in audits of 401(k) plans, 403(b) plans, Profit Sharing plans and ESOP plans which range between 100 - 5,000 eligible participants.
As a member of the American Institute of CPAs (AICPA) Employee Benefit Plan Audit Quality Center, we are committed to adhering to the highest quality standards by voluntarily agreeing to the Center's membership requirements. The requirements include designating a partner responsible for our employee benefit plan audit practice, establishing quality control programs, performing annual internal inspection procedures, and obtaining the necessary Continuing Professional Education to perform audits of employee benefit plans.
The services we provide as part of our 401(k), 403(b) and Profit Sharing Plan audits include:
- Analytically reviewing plan transactions, including income, gains and losses, deferrals, loans, assurance contributions and withdrawals, and ensuring no transactions were prohibited under ERISA.
- Obtaining allocation and other transaction reports from plan trustees or third-party administrators (TPAs) and testing these for compliance with the plan documents and applicable regulations.
- Comparing deferrals and contributions from the trustee/TPA's reports to payroll records, employee election forms and plan documents.
- Testing the timeliness of contribution remittances for compliance with ERISA requirements.
- Testing payroll records for accuracy of deferrals and related computations.
- Testing a sample of loans for compliance with plan document requirements and ERISA regulations.
- Testing a sample of withdrawals for compliance with federal withholding requirements, hardship distribution regulations, and early-withdrawal penalties as well as recalculating vesting % and forfeitures.
- Testing a sample of non-participating employees and newly-eligible employees for complete documentation and proper inclusion or exclusion in the plan.
- Reviewing IRS Form 5500 Schedule H for accuracy as required by auditing standards.
For more information on how we can help you manage your company’s employee benefit plans, please call Kathi Silicato, CPA at 302.225.5150 or email her at firstname.lastname@example.org.
Experience is the Difference®