The Ultimate Employee Benefit Plan Audit Checklist

If your company has more than 100 employees with benefit plans (EBPs), the Department of Labor (DOL) demands that an Employee Benefit Plan Audit be completed annually by a CPA. It’s possible that the DOL may act upon the Form 5500 you submit to the IRS regarding your company’s 401K and review the audit.

To avoid any penalties or action on the part of the DOL, it’s in your best interest to review this Employee Benefit Plan Audit Checklist to ensure you’ve covered all your bases.

What is an Employee Benefit Plan Audit (EBP Audit)?

In layman’s terms, an Employee Benefit Plan Audit is a chance to go through your employee benefit plans and highlight areas for improvement regarding the cost and management of the benefits therein.

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The Employee Benefit Plan Audit Preparation Process

Employee Benefit Plan Audits necessitate a dedicated CPA to conduct the audit because of the high degree of training required, but also includes personnel like:

  • Plan Sponsor
  • Party Administrator
  • And Plan Administrator

Sometimes, these audits can include feedback or participation from the plan participants on a rudimentary level, but they are not often required.

The audit team will conduct the audit by examining the internal controls, eligibility compensation, plan documents and participant loans over the following areas of the benefits package including:

  • Pension retirement plans
  • 401Ks
  • Profit-sharing financial statements
  • 403Bs
  • Unions representations
  • Savings plans
  • Health & welfare
  • Vacation
  • Severance packages
  • And other benefits
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Employee Benefit Plan Audit Checklist

How to Do an Employee Benefit Plan Audit: Preparing with the Checklist

Regardless of your level of preparedness, having your employee benefit plan audit report examined by the DOL is rarely a positive experience. That’s why it’s imperative to be as thorough as possible by ensuring you’ve completed every item on this Employee Benefit Plan Audit Checklist.

  1. Compile Plan Documents
    Here you’ll want to accurately collect and file important documents such as the most recent, fully executed, prototype or volume submitter plan documents and adoption agreement. Also include every fully executed amendment to the plan since adoption as well.
  2. Record the Minutes of the Plan/Investment Committees
    As a best practice, maintain all minutes for all meetings of the committees charged with plan governance.
  3. Collect Service Agreements with Third-Party Providers
    You’ll need to include agreements from investment custodians, third-party administrators, investment advisors, insurance companies, auditors, lawyers and any other service providers who rendered services to the plan in any way.
  4. SOC 1 Reports
    Gather and review the annual service providers’ reports on internal controls and operational effectiveness of their internal controls.
  5. Required Communications to Employees
    This includes things like the summary annual report (SAR), summaries of material modifications (SMM) and any blackout notices relating to the trustee changes and annual fee disclosures.
  6. Evidence of Employee Education
    All documentation relating to educational sessions for plan participants must be gathered and filed and on an annual basis.
  7. Fee Benchmarking
    Plan management should have the plan’s investment and administrative fees benchmarked on an annual basis by an investment advisor.
  8. ERISA Fidelity Bond & Fiduciary Insurance Policies
    Plans are required to maintain a fidelity bond in an amount greater than 10% of assets or $500,000 (consult the plan’s advisor for specific employee benefit plan audit requirements).
  9. Form 5500 Filings
    This includes the audited financial statements. As a best practice, the plan should maintain the last three years of filings.
  10. Trust & Plan Participant Reports
    Make sure to include at least the last three years of reporting. Trustees should provide a yearly reporting package as well as quarterly reporting to plan sponsors.
  11. Reconciliations of Contributions
    Any and all contributions that go into the employee benefit plan must be reconciled from the trust reports to the supporting documentation, as per the plan sponsor’s records. This generally includes employer contributions and plan participant deferral contributions.
  12. Documentation of Corrections
    If the plan management needs to make corrections on any errors made, full documentation of both the error and the correction ought to be maintained in the files. Naturally, this includes any correspondence, reports used and the applicable filing with the IRS or DOL.
  13. Non-Discrimination Testing & Census Information
    Here, you want to include any corrections made to the benefit plan derived from nondiscrimination testing as well as from maintaining the testing and census information.
  14. Actuary Reports
    If applicable, maintain annual actuary reports from the last three years.

By completing all of the steps outlined in the employee benefit plan audit guide above (and doing your due diligence), you will be in good shape if the DOL ever comes a-knocking.

Employee Benefit Plan Audit (EBP Audit)

More Tips for an Employee Benefit Plan Audit

If you’ve contracted an outside third party to conduct an Employee Benefit Plan Audit on your behalf, you’ve already taken the first, most important step.

Performing an audit on your benefit plans is a highly specific and complicated process. That’s why, to do it in a way that lives up to the DOL’s standards, requires very specialized training, like the kind possessed by the employee benefit audit experts here at HKMP.

We’re nationally recognized for our high-tech approach to auditing. 
Talk to us today for a free consultation and get a head start on your employee benefit plan audit.

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