Employee Benefit Plan Audits 101

Posted by John Neville on Aug 8, 2017 8:00:00 AM
John Neville
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Employee benefit plans have their own set of complex laws and regulations. But did you know that even small plans can be subject to audits?

Generally, if you have 100 eligible participants in your plan at the start of the year, your plan will require an audit. Note that this number includes all participants who are eligible—not just those who are enrolled.

If you filed as a 'small plan' last year and the number of participants in your plan is fewer than 121 at the beginning of this plan year, you may continue to file as a small plan under the 80-120 Participant Rule. This rule allows plans with between 80 and 120 participants at the beginning of a plan year to file in the same category as the previous year.

Many small businesses downplay employee benefit plan audits. However, failing to file, or filing late or incorrectly, can have serious repercussions. Here's what you should know:

  • Requirements:
    Plan administrators are required to ensure that plan financial statements are audited in accordance with Generally Accepted Accounting Standards and presented in accordance with Generally Accepted Accounting Principals. Hiring an auditor is considered a fiduciary obligation. Plan sponsors also have a fiduciary responsibility to transmit employee contributions in a timely manner, as well as keep an accurate census of plan participants and certain demographic attributes.
  • Deadline:
    Employee benefit plan audits are due 7 months after the end of the plan year, with a 2 1/2 month extension available by filing a Form 5558.
  • Penalties:
    Failure to submit an employee benefit plan audit that meets requirements can result in the US Department of Labor bringing heavy fines and/or civil action against the plan sponsor. It may also result in personal liability for the officers of the plan, which often means legal fees and time spent to resolve the situation.

Your CPA can help you determine if your employee benefit plan meets the criteria for an annual audit, suggest ways to avoid penalties, and ensure that your audit meets all requirements. If you have any questions about employee benefit plan audits, leave a comment below, or feel free to contact me directly anytime.

Topics: Accounting, Business Advisory, Audit