Employee benefit plan sponsors have their hands full when it comes to monitoring regulatory trends and other updates that may affect plan operations, administration and compliance. The following developments may be of interest to your plan compliance, particularly in the months ahead.

New DOL Audit Quality Study in the Works

Perhaps the most notable news over the past several weeks came from the Department of Labor, which announced it would be using employee benefit plan audits of the 2020 plan year for its next review of employee benefit plan audit quality.

As has oft-been discussed, employee benefit plan audit quality is a focal point for regulators, and by conducting periodic compliance reviews of audits performed, the DOL’s Employee Benefits Security Administration (EBSA) Office of the Chief Accountant (OCA) hopes to draw attention to how employee benefit plan audits can be improved.

The timing of the study – a year where so much was not normal – may strike some as odd, but the EBSA has generally been reviewing plan audits every 10 years. The last batch of employee benefit plan audits reviewed were for the 2011 plan year. 2020 is the last year before the new employee benefit plan audit report form and content changes take effect, which will particularly impact audits that were formerly known as limited scope audits. Compared to the 2021 plan year, the 2020 plan year audits provide the best apples-to-apples comparison to the previous report, which found that close to 60% of the limited scope audits contained major deficiencies. In the new audit standards effective for 2021 calendar plan years, audits formerly known as limited scope become ERISA Section 103(a)(3)(C) audits, which come with additional audit and plan sponsor certification requirements.

Audit quality assessments of employee benefit plans take time to complete. For example, with the most recent audit quality report, the 2011 plan year was selected but the final report was compiled in 2014 and released in 2015. The next steps for the assessment of 2020 plan year will be for the EBSA OCA to develop its methodology for sampling plan audits to review.

ERISA Employee Benefit Plan Audit Standard Taking Effect

Closely related to the topic of employee benefit plan audit quality are the changes to employee benefit plan audit standards. Auditing Standards No. 136, Forming an Opinion on Employee Benefit Plans Subject to ERISA will affect 2021 calendar plan year audits performed in 2022.

Changes to the audit standard will affect plan sponsors, too. Among other updates, plan sponsors will be required to acknowledge the following in writing:

  • Your organization maintains a current plan instrument
  • You administer and determine plan transactions, and ensure they are presented and disclosed in the plan’s financial statement according to plan provisions
  • You have maintained sufficient plan recordkeeping.

The  biggest updates affect ERISA Section 103(a)(3)(C) audits (formerly DOL limited scope audits), which will require plan sponsors to acknowledge in writing that they are permitted to receive such an audit, the investment information is certified by an entity authorized to do so, and the certified investment information is appropriately measured, presented, and disclosed.

For a deeper dive of the auditing changes, please see our prior article, 5 Ways the New ERISA Employee Benefit Plan Audit Standards Will Affect Your Plans.

COVID-19 and Remote Work Continues to Impact Plan Audits

The remote work environment brought on by the COVID-19 pandemic certainly hasn’t changed as much as any of us had expected in 2021. Plan audits may encounter similar sets of questions in 2021 as they did in 2020, notably how internal controls adjusted for plan sponsors, administrators or third-parties acting on behalf of your plan to accommodate the remote work environment. Cybersecurity is becoming an increasing focus area, both because the DOL issued recommendations on plan cyber measures and because of the frequency of cyber-attacks on the types of plan participant data that plans hold. For a more in-depth look at cyber issues, see our prior article, Cybersecurity and Retirement Plans: What You Need to Know.

Auditors may continue to scrutinize your analysis of your plan’s ability to continue as a going concern and your organization’s ability to continue as a going concern. Plan financial statement disclosures will be reviewed closely as well, particularly related to the risks and uncertainties in the environment or if the plan or plan sponsor experienced any subsequent events.

DOL Looks for Input on Form 5500 Changes

EBSA and the Pension Benefit Guaranty Corp. (PBGC) recently proposed changes to the Form 5500 that would potentially limit the number of plans subject to an employee benefit plan audit. Changes come in response to the Setting Every Community Up for Retirement Enhancement (SECURE) Act signed into law in late 2019. Key changes would consolidate reporting for qualified defined contribution retirement plans, make changes to multiple-employer pension plan reporting, and limit the types of defined contribution pension plans subject to the EBP audit by making more defined contribution pension plans eligible for simplified reporting. Additionally, improvements would target the financial reporting for pooled employer plans by adding new fee and expense reporting requirements and questions to improve reporting for defined benefit pension plans covered by the PBGC.

The Form 5500 changes would reduce the number of plan filers by 20,000, amounting to almost $63.9 million in audit cost savings. If adopted, the changes would affect the 2022 plan year (generally audits performed in 2023).

Helping You Stay Up-to-Date

Our employee benefit plan audit team is committed to helping your organization stay updated on the latest. For specific comments, questions or concerns, please contact us.

Published on October 26, 2021