Administrators of small plans (i.e., plans with fewer than 100 participants) typically do not work with external auditors due to the simple fact that such plans do not require an audit under the Employee Retirement Income Security Act of 1974 (“ERISA”). As such, use of such service providers is not seriously considered. However, it might be time administrators of small plans give the auditor another look. Consider the following:
1) There is no size exemption under ERISA. In other words, the qualified retirement plan of a small business is going to face the same compliance requirements as the qualified retirement plan of a much larger business.
2) Large plans benefit from the work of the auditor in identifying issues before they become major problems for the plan. Common examples of issues identified in an audit include the following:
• Failure to follow plan terms with regard to employee eligibility;
• Errors in vesting calculations resulting in incorrect distributions to participants;
• Failure to timely remit employee 401k withholdings to the Plan;
• Failure to allocate participant contributions in accordance with participant elections; and,
• Failure to properly apply hardship provisions in accordance with plan provisions.
Left uncorrected, each of the preceding issues could result in any of a number of problems for the plan and/or plan sponsor and administrator, including additional cost to make participants whole, loss of qualified plan status, participant lawsuits, and breach of fiduciary duty.
How might a small plan benefit from working with an auditor? An audit firm that specializes in plan audits can be retained to perform targeted procedures designed to identify problem areas in a timely manner so corrections can be made and, if necessary, reported. This approach would allow small plans to tap into the benefits of the audit without having to incur the fees and time of a full audit.
CDH can provide these services. If you are a plan administrator for a small plan and would like to have a review of your plan document and receive a proposal for a compliance review of your plan, please contact any of your CDH employee benefit plan professionals.