Generally, the Employee Retirement Security Act of 1974 (ERISA) requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file an annual return/report (Form 5500 Series). If your employee benefit plan is required to have an audit, one of your most important duties is to hire an independent qualified public accountant, and to ensure that the plan has obtained a quality audit in accordance with ERISA and U.S. Department of Labor (DOL) requirements. The sponsor of the plan is the plan administrator under the law unless another individual or entity is specifically designated to assume this responsibility. The term plan administrator refers to the party that is the responsible for the existence and operations of the plan, including a plan sponsor, third-party administrator or trustee.
Independent audits of employee benefit plan financial statements are an important accountability mechanism. A financial statement audit provides an independent, third-party report to participants, plan management, the DOL and other interested parties that indicates whether the plan’s financial statements provide reliable information to assess the plan’s present and future ability to pay benefits. Financial statements can be complex, so users may rely upon the statement where the auditor reports on the information contained in the financial statement. An audit helps protect the financial integrity of the employee benefit plan, which helps users determine whether the necessary funds will be available to pay retirement, health, and other promised benefits to participants.
The audit also may help plan management improve and streamline plan operations by evaluating the strength of the plan’s internal control over financial reporting and identifying control weaknesses or plan operational errors. As a result, the audit can provide insights on how to address present and future challenges facing your plan. And the audit helps the plan administrator carry out its legal responsibility to file a complete and accurate Form 5500 for the plan with the DOL. A properly performed audit can give valuable knowledge and insight that can help improve the operations of the plan.