Audit Stress? Lessen Annual Audit Anxiety with a 3(16) Fiduciary The Department of Labor (DOL) requires retirement plans with at least 100 eligible plan participants to submit an audit report with their annual Form 5500 return. As you might expect, any audit — even if it’s a routine review — can create anxiety for a plan sponsor. Working with an experienced 3(16) fiduciary can help reduce stress and make for a smoother audit process. Plan Audit Basics The Employee Retirement Income Security Act of 1974 (ERISA) requires plan sponsors to maintain retirement plans for the exclusive benefit of plan participants and beneficiaries. One way that the DOL meets this rule is to require plan administrators to submit an annual report detailing various aspects of plan operations, including financial data. Plans with 100 or more participants with account balances at the start of the plan year must submit an audit report with the plan’s annual Form 5500 return. The audit must be conducted by an independent qualified public accountant (IQPA), who compares the Form 5500 information with the plan sponsor’s other relevant financial data. The IQPA has significant latitude to determine what is needed to present an informed opinion, but a plan audit typically includes a review of numerous areas: • Timely employer and employee contributions, comparing plan records with payroll records. • Nondiscrimination testing results, confirming that any failures have been corrected. • Compliance with distribution and loan program requirements. • Plan expenses, including whether they are necessary and reasonable. • Financial controls or other mechanisms that the plan sponsor uses to ensure conformity with federal retirement plan rules and generally accepted accounting principles. The IQPA renders an “opinion” based on a review of the plan sponsor’s relevant financial records, reconciling these findings with the information presented in the Form 5500 filing with the DOL. On Form 5500, there are check boxes for four possible opinion options: • Unmodified opinion — The IQPA concludes that the plan’s financial statements are presented fairly in all material respects. By John Schafer, VP, National Leader, Financial Institutions Channel, Pentegra 22 West Virginia Banker
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