Is Your Current CPA Firm Acting as a True Advisor to your Employee Benefit Plan?
posted Sep 13, 2011 by
As the country struggles to climb out of a sluggish economy and with retirement plans suffering huge losses at the end of the last decade, the Department of Labor (DOL) continues to increase its level of scrutiny on the area of Employee Benefit Plans (EBP). With heightened media attention to the dwindling assets within retirement plans, the DOL has raised its awareness level on EBP plans. The heightened scrutiny has uncovered an increasing number of errors found in these plans. A recently completed 401(k) compliance questionnaire project noted the following errors in 401(k) plans:
- Document failure – EBPs need to maintain the original plan documents, any and all amendments made to the original plan, IRS determination letters, and all documentation related to the plan.
- Failure to follow the terms of the plan document – it is recommended that the plan document is reviewed annually by the trustees of the plan to ensure that the terms of the document are being adhered to.
- Failure to correctly use the Plan’s definition of compensation – the heart of this issue is the complexity of the definition of compensation. It is recommended that the trustees of the plan review the definition of compensation annually to ensure that the calculations are done correctly. If feasible, the definition of compensation should be simplified.
- Failure to follow the Plan’s matching contributions provisions
- Failure to satisfy ADP/ACP nondiscrimination testing – typically issues with quality of information causes errors.
- Failure to include all eligible participants – again the quality of information plays a major role in these errors.
- Failures to deposit deferrals on timely basis – deferrals are required to be deposited as soon as administratively feasible but in no case should the deferrals be later than the 15th day of the following month.
- Limiting elective deferrals to IRC 402(g) limits for the calendar year – is someone at the Plan sponsor monitoring the elective deferral amounts so that these limits are not exceeded?
- Failure to follow the plan’s loan provisions and violation of IRC 72(p) – with the sluggish economy, more participants are seeking loans from their retirement plans. Is someone at the plan sponsor ensuring that the loan provisions, if applicable, are being followed?
- Failure to follow the plan’s terms regarding hardship distributions – if eligible for a hardship distribution, is the appropriate supporting documentation being maintained?
Are you getting what you pay for in an audit?
A quality audit of an employee benefit plan will help protect the assets and the financial integrity of the plan and ensure that the necessary funds will be available to pay retirement benefits to your employees. A quality audit will also help the plan sponsor carry out the legal responsibility to file a complete and accurate annual return/report for your plan each year. Selection of the right CPA firm to provide a quality audit is a fiduciary responsibility of the trustees of the plan. A quality audit will be more than a compliance exercise but rather will offer advice and counsel to the plan and its trustees.
Signs you need a new audit firm for your plan audit
The common complaints that companies have with their auditors are:
- Poor service and lack of responsiveness to their needs
- High turnover of firm’s accounting staff
- Not proactive in forming plan sponsors about their role as fiduciary
- Do not understand the unique nature of various types of benefit plans and how they work
- Auditor doesn’t make any suggestions for improving internal controls
- No communication from the auditors on the current industry developments
- Does not review contracts with third-party service providers and fee arrangements
- Firm does not have the appropriate level of resources
- Lack of a quality audit subjected their plan to regulatory agency inquiries
- Firm does not have a dedicated employee benefit plan practice
The penalties for an incomplete, inadequate or untimely audit report may result in substantial penalties being assessed against the plan administrator, so the selection of an experienced, qualified and reliable audit firm is crucial. Make sure that you don’t make these same mistakes when choosing your new CPA firm because they could prove costly!