Business entities that sponsor employee benefit plans, and plan administrators with the responsibility for regulatory compliance of their benefit plans should take note. There are significant changes coming for 2021 employee benefit plan audits that will include new requirements for plan sponsors.
Beginning with 2021 audits, auditors are required to follow new auditing standards to perform and report on plan financial statement audits subject to the Employee Retirement Income Security Act of 1974 (ERISA).
The Auditing Standards Board of the American Institute of CPAs issued Statement of Auditing Standards (SAS) No. 136. The purpose of SAS 136 is to improve audit transparency and enhance audit reporting for the specialized nature of ERISA plan audits.
The independent auditor’s report will look significantly different under SAS 136 than what you are used to. The report format and wording have changed, with expanded reporting relative to management fiduciary responsibilities. There is also expanded reporting for auditor responsibilities and communication.
In the past, many ERISA plan audits were performed as “limited scope audits,” where the auditor is limited from auditing investment information that is certified by a qualified institution. This terminology is replaced by SAS 136 with “ERISA Section 103(a)(3)(c) audits.” It’s quite a mouthful!
Let’s take a look at the impact of SAS 136 on plan sponsors.
Plan sponsors will need to assess whether an ERISA Section 103(a)(3)(c) audit is permissible, the plan investment information is appropriately prepared and certified by a qualified institution, and the certification received meets Department of Labor requirements.
Plan sponsors will be required to acknowledge their responsibility for the following activities related to the plan:
Maintaining a current plan instrument and all plan amendments
Administering the plan and determining that the plan’s transactions are in accordance with plan provisions
Maintaining sufficient plan records with respect to plan participants
Plan sponsors will need to provide the auditor with a draft of the Form 5500 that is substantially complete prior to the date of the auditor’s report.
Plan sponsors should be aware of additional communications required under SAS 136. Auditors are required to communicate in writing reportable findings, including identified or suspected non-compliance with laws or regulations, significant findings arising from the audit and deficiencies in internal controls identified during the audit.
With the adoption of SAS 136 for 2021 plan audits, there will be additional planning and coordination required between plan sponsors, auditors, 5500 preparers and trustees/custodians. Auditors may request additional information from plan sponsors in order to perform the ERISA plan audit under the new standard.
What Can Plan Sponsors Do Now to Get Ready?
There are a few things you can do now to prepare for the changes. We recommend that you:
Understand the additional responsibilities, including maintaining a copy of the current plan document and amendments, ensuring plan transactions are in accordance with plan provisions and maintaining sufficient participant records.
Review the ERISA Section 103(a)(3)(c) audit certification obtained from the trustee or custodian to determine it meets ERISA requirements and which investments are covered by it.
Coordinate with the Form 5500 preparer regarding when the 5500 will be completed and ready for review by the plan auditor.