October 21, 2021

Big Changes Coming to Benefit Plan Audits

For many years there has been concern about the accuracy, consistency, and quality of ERISA plan audits. Originally introduced as part of the Employee Retirement Income Security Act (ERSA), the audits are designed to ensure plans comply with established governance, financial reporting, and other standards. The depth of the problem came into focus when the DOL published, Assessing the Quality of Employee Benefit Plan Audits in 2015. In the report, it was found that 40% of audits contained major deficiencies. The report was full of such unfavorable findings which called into question the effectiveness of both the audit standards and firms providing the service. To resolve the issue, the  American Institute of Certified Public Accountants (AICPA) published Statement on Auditing Standards 136 to improve transparency while enhancing the audit reporting model. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

New Management Responsibilities

Under new regulations, management will now have to acknowledge responsibility for and confirm compliance with several new items. Primarily, there will need to be an acknowledgment made that a current plan instrument has been maintained (including all plan amendments), and that all transactions are presented and disclosed conform with appropriate plan provisions. This should also include the maintenance of individual participant records necessary to determine the number of current benefits due and those which may become due in the future.

In the event management elects to undergo an ERISA Section 103(a)(3)(C) audit, then additional acknowledgments must be provided. This includes confirmation the audit is permissible under the circumstances, the investment information is prepared and certified by a qualified institution, the certification meets established requirements, and the certified investment information is properly measured and disclosed according to the applicable financial reporting framework.

It is important to note that management will be required to demonstrate to the plan auditor how it was concluded that the company preparing and certifying investment information was determined to be a qualified institution.

Communication Update – Reportable Findings

In addition to the expanded management responsibilities, when it is determined that items do not comply with established criteria, then the plan auditor is required to communicate these reportable findings to management. This can include the following:

• Any instance of non-compliance or suspected non-compliance with established laws or regulations.
• A finding arising from the audit work that (according to the plan auditor’s judgment) is significant and relevant to those responsible for governance and overseeing the financial reporting process.
• There is an indication of deficiencies in internal controls identified during the audit that have not been communicated to management. The new regulations make it clear that only items deemed important by the auditor need to be communicated.

Effective Date

SAS 136 is effective for retirement plan financial statement audits for periods ending on, or after, December 15, 2020. This means that most plan sponsors will be required to undergo the new audit process for the 2020 plan year audit.

Contact Us

Atlanta retirement plan sponsors should expect a very different plan audit and reporting process in the coming months. In fact, there will also be changes to the engagement letter as well. If you have questions about the information outlined above or need assistance with your upcoming retirement plan audit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.