Much like going to the dentist, preparing for your ERISA audit may not be the most exciting to-do on your summer schedule! However, just as regular dental checkups are necessary for your health, being ready for your ERISA audit will ensure the health of your plan and employees.
Company 401(k) and 403(b) plans with 100 or more participant account balances are required to undergo an Employee Retirement Income Security Act (ERISA) audit by a CPA firm. Meeting this requirement can be resource-intensive; however, preparing for the upcoming audit now offers benefits, including preventing last-minute issues, reducing errors and easing the audit process itself.
Organizing Plan Documentation and Financial Records
Companies should organize all plan documentation, ensuring participant data (contributions, distributions, loans) is accurate and aligns with payroll and third-party administrator (TPA) statements.
- Perform regular reconciliations to verify all transactions are accurately recorded.
- Verify that contributions comply with IRS limits.
Early review of these records prevents last-minute issues.
Implementing/Documenting Internal Controls and Processes
Effective internal controls are crucial for minimizing errors and mitigating the risk of fraud. Companies should employ detailed narratives around key cycles to define roles and responsibilities. These controls should be centered around or include:
- Timely deposit of contributions, determined by what is administratively feasible;
- Segregation of duties to help prevent fraud;
- Regular reconciliations of employer/employee contributions from TPA information to payroll records;
- Clear approval processes for distributions or loans to minimize errors; and
- SOC Reports: Review the Complimentary User Entity Controls (CUECs). Included in the recordkeeper’s SOC report is a list of control objectives the plan sponsor is responsible for, along with specific instructions on how to achieve them. The plan sponsor should review and ensure they are fulfilling the outlined steps.
While this is not a comprehensive list, these controls will provide checks and balances to ensure the plan is operating effectively.
Communicating with Third-Party Administrators and Auditors
Effective communication with TPAs and auditors is crucial. Reach out to TPAs to ensure participants’ data will be ready, and work with auditors to provide required documentation.
- Reach out to TPAs to confirm that all necessary data, such as participant records and financial reports, is on track and will be provided on time. Often, TPAs can work directly with your auditor for these reports, reducing the workload on your end. Contact your TPA to see how they can help facilitate the delivery of necessary audit information.
- Work closely with auditors to understand what documentation is required, such as plan financials, participant data and compliance reports. This ensures the audit process is efficient, and that issues are addressed promptly.
Communicating with all parties prior to your audit can ease your team’s burden, as many of the required documentation items can be provided before the audit begins.
Staying Updated on Regulatory Changes
Recent legislative changes, particularly the SECURE Act 2.0, have introduced significant updates to 401(k) and 403(b) plans. Key changes effective or relevant for 2025 include:
- Automatic Enrollment: ERISA Plans established after December 29, 2022, are typically required to include auto-enrollment features within the plan.
- Required Minimum Distributions (RMD) Age Adjustments: With the goal of giving participants more time to grow their savings, RMD age increased to 73 in 2023 and will rise to 75 in 2033.
Companies should continually monitor regulatory changes and update their plans to comply with these changes.
Conclusion
Preparing for your ERISA audit requires a proactive approach. Focusing on organizing your records, implementing/documenting controls, early communication, and staying up to date on regulations throughout the year will pay off (much like flossing!). For more information on how to prepare for your ERISA audit, contact a member of the Schneider Downs ERISA group.
About Schneider Downs Wealth Management
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
Schneider Downs Wealth Management has been providing investment and retirement services since 2000. Although our service platforms continue to evolve, commitment to our clients remains our first priority. Our service is tailored to your individualized goals but built on the fundamental principles of our practice: fiduciary guidance, fee transparency and goal-based decision making. To learn more, visit our dedicated Wealth Management page.
