Digging into


Digging into ERISAMany people do not realize that Certified Public Accountants provide the service of auditing the financial statements of employee benefit plans.  Before digging into this niche audit area, it is imperative to understand the governing law that establishes the need for the audit. 

Which employee benefit plans have to be audited?

First, an employee benefit plan must be subject to the Employee Retirement Income Security Act of 1974 (ERISA).  While not all benefit plans are subject to ERISA, most plans do fall under the ERISA guidelines.  Non-governmental pension plans, including defined benefit and defined contribution plans (includes profit-sharing, 401(k), 403(b), and ESOP plans), are subject to ERISA.  Welfare benefit plans, health savings accounts, and flexible spending accounts are also subject to ERISA.  Any plan with more than 100 plan participants (considered a ‘large’ plan for audit purposes) is required to have an audit annually.  This audit report is submitted with the Form 5500 filing, which is described below.

What is ERISA?  

ERISA is a federal law that governs certain standards for retirement plans in the private industry.  ERISA specifies:

  • Minimum standards for employee eligibility, vesting, and funding

  • Fiduciary responsibilities and standards

  • Reporting and disclosure requirements

  • Enforcement responsibilities

ERISA’s primary purpose is to protect the assets of employees so that the funds placed in benefit plans while an employee is working are available at retirement.  Certain parts of ERISA are coordinated with applicable tax-related provisions of the Internal Revenue Code.  The Department of Labor is the primary enforcer of ERISA.  

What are some of the main reporting and fiduciary requirements of ERISA?

There are numerous reporting and fiduciary responsibilities for employers to follow to ensure compliance with ERISA.

ERISA requires employers (also referred to as plan sponsors) to have a written plan document for each benefit plan offered to employees.  This document details the establishment of the plan, the procedures for allocating responsibilities for operating and administering the plan, the procedures for amending the plan, the specifics of making payments to and from the plan, the requirements of holding the plan assets in a trust, and the prohibition of certain transactions.

Employers must provide employees with a Summary Plan Description (SPD) which explains how its benefit plan operates.  An SPD includes the following information: name and type of plan, eligibility requirements, description of benefits and when employees have a right to the benefits, source of contributions and the method used to calculate contributions, plan termination provisions, claims for benefits provisions and a statement of rights available to participants under ERISA.  

A Summary of Material Modifications must be provided to all plan participants if there is a material change in the terms of the plan or a change in the SPD.  

ERISA requires plan sponsors to file Form 5500 annually.  Form 5500 (and related documents as required) is due seven months after the plan’s year end.  Form 5500 reports the qualification of the plan and its investments, operations and financial condition.  The contents of Form 5500 are summarized in the Summary Annual Report which all employees must receive from the plan sponsor.  One of the required supplemental documents submitted with Form 5500 is the audit report completed by a Certified Public Accountant.