Best Practices for Preparing For a Retirement Plan Audit

Blog
May 16, 2022

Are you feeling anxious about your benefit plan audit? As we kick off our benefit plan audit season, we thought it might be helpful to share a list of items we typically request and some best practices to help you prepare. This can be a great resource if you are a new benefit plan audit contact, if your plan just met the threshold for an audit, or if you simply need a refresher. The below was prepared with a 401(k) plan in mind. If you have any other plan type, additional items will need to be considered.

A Typical Request List

  • All applicable plan documents for the year under audit: adoption agreement, amendments, basic plan document, determination or opinion letter, summary plan description, loan policies, etc.
  • All applicable plan service agreements for the year under audit: custodian, trustee, recordkeeper, investment advisor, etc.
  • Audit package from the third-party administrator (TPA)
  • SOC-1 reports for the custodian, recordkeeper, and payroll provider
  • Any correspondence from the Department of Labor (DOL) or Internal Revenue Service (IRS) regarding the plan
  • A list of all parties-in-interest and related parties and all applicable transactions with such parties
  • Legal invoices related to the plan
  • Any committee or board minutes that discuss the plan
  • Form 5500
  • Nondiscrimination testing
  • Employee listing for the year under audit, including certain demographic data, compensation, and deferrals for the year
  • Year-to-date payroll report or W-3 that has gross compensation that agrees to the total on the employee listing
  • Once we make the participant, distribution, loan, and rollover selections, we will request various support for each selection, which can include I-9s, termination support, deferral election support, payroll records, approved wage support, distribution support, and confirmations. We will also request items from the TPA such as rollover support, loan support, and distribution support, etc.
  • Contribution records

We will perform various interviews and walkthroughs with different plan personnel during planning and fieldwork. If this is the first year the plan is being audited, we will go over the plan history and review prior year plan information. If the plan has been audited before, but it is our first year performing the audit, we will need to talk to the prior auditors and review their workpapers for the prior audit. Initial audits can be a little time consuming but will not be as extensive in following years.

Best Practices

  • Submit the necessary information to your TPA early so they can perform nondiscrimination testing and prepare the 5500 in a timely manner.
  • Verify that all plan documents are properly signed and executed.
  • Review the activity in the audit package, as well as the certification of the investments, if applicable.
  • If there are multiple locations, designate one person as the main point of contact for the audit requests.
  • Make sure all critical plan personnel are available during planning and fieldwork. For instance, those involved in the plan processes need to be available for walkthroughs. Management and those charged with governance need to be available for planning inquiries. Responsible human resources and payroll personnel need to be available to provide fieldwork items and resolve open items. Representation letter signers need to be available to sign the letter once the audit report is dated.
  • Establish auditor access to the TPA website so we can pull necessary documents or reports directly from the website.
  • Provide us with a contact at the TPA that will be available if we have any questions for them.
  • Review controls over the plan on a periodic basis, and update as necessary.
  • Obtain SOC-1 reports for the custodian, recordkeeper, and payroll, and review them on an annual basis for any modifications to the opinion. Ensure that you have the proper controls in place to cover the complementary user controls listed in the report.
  • Please send us any correspondence from the DOL or IRS that are plan related as soon as you receive them,

We recognize that managing a benefit plan can be challenging, and the audit can add additional stress. Know that we also want the audit to be efficient, and to intrude as little as possible on your day-to-day responsibilities. We hope the guidance provided above can help the process go smoothly!