Employee Benefit Plan FAQ: Preparing for EBP Audit Requirements

Written by Missy Herbert on March 3, 2021

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The Employee Retirement Income Security Act (ERISA) was introduced in 1974; its purpose is to ensure that assets belonging to employees as part of retirement plans will remain available during retirement.

In other words, ERISA serves to protect assets in retirement plans so that they aren’t misused or placed at risk so that employees will receive their benefits.

Going through an EBP audit can be a daunting process, especially if you’re going through the process for the first time. A successful employee benefit plan audit requires you to prepare ahead of time to ensure the process moves smoothly and minimizes time and cost for all parties involved.

To ensure that the process proceeds with minimum disruptions, it’s important to effectively prepare for an EBP audit. Here, we discuss the most common FAQs that relate to audit preparation.

1. Is My EBP Required to Have an Audit?

As of the first day of each plan year, generally an EBP requires an audit if it contains more than 120 eligible participants.

While this is the general rule, there are other important factors to consider. First, if your EBP consists of less than 120 eligible participants at the start of the plan year, you do not require an audit if you file as a Small Plan (Schedule 1) for your Form 5500. However, if you file as a Large Plan (the accompanying Schedule H), you will require an audit. There are other exceptions as well relative to health and welfare plans depending on whether the plan is considered funded or non-funded.

If you have any questions about whether your plan requires an audit, reach out to the experts at Warren Averett.

2. What Is Meant by an Eligible Participant?

What qualifies as an eligible participant may not be as clear as you first think.

An eligible participant includes all active employees in addition to those employees who meet all eligibility requirements but do not yet participate in the EBP. Eligible participants also include any terminated employees carrying a balance in an EBP on the first day of the plan year.

Make sure you apply these guidelines correctly, or you risk facing serious complications in the audit.

3. When Is an Audit Required?

The timeframe for an audit is within seven months of the end of the plan year. It must be conducted prior to the expiration of this period, although you can apply for an extension for an extra two and a half months if necessary.

4. What Are the EBP Audit Requirements that a Plan Auditor Considers?

The prominent focus of EBP audit requirements is on participant-related activity and transactions. As a result, an EBP auditor will concentrate on the following areas:

  • demographic characteristics;
  • payroll data;
  • distribution documents;
  • deferral percentages;
  • claims that were paid concerning health and welfare plans; and
  • plan document requirements. Equally important are the investments of the plan. Regardless of whether you are conducting a full scope audit or a limited scope audit, the plan’s financial statements must encompass all relevant disclosures required in the reporting framework (which would be directed by the generally accepted accounting principles).

Warren Averett Can Help You Through the Process

An audit is a process that requires detailed preparation. As such, it can be difficult to manage the steps effectively, particularly if you are new to the requirements associated with an EBP audit.

Expert assistance is invaluable when you need help navigating the process and understanding your position—as the saying goes, an ounce of prevention is worth a pound of cure.

The more prepared you are for your EBP audit, the more efficient the entire process will be for your staff, company and the auditor. If you need help managing your EBP audit requirements, contact the experts at Warren Averett.

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