The Department of Labor (DOL) requires retirement plans with at least 100 eligible plan participants to submit an audit report with their annual Form 5500 return. As you might expect, any audit — even if it’s a routine review — can create anxiety for a plan sponsor. Working with an experienced 3(16) fiduciary can help reduce stress and make for a smoother audit process.

Plan Audit Basics

The Employee Retirement Income Security Act of 1974 (ERISA) requires plan sponsors to maintain retirement plans for the exclusive benefit of plan participants and beneficiaries. One way that the DOL meets this rule is to require plan administrators to submit an annual report detailing various aspects of plan operations, including financial data. Plans with 100 or more participants with account balances at the start of the plan year must submit an audit report with the plan’s annual Form 5500 return. The audit must be conducted by an independent qualified public accountant (IQPA), who compares the Form 5500 information with the plan sponsor’s other relevant financial data. The IQPA has significant latitude to determine what is needed to present an informed opinion, but a plan audit typically includes a review of numerous areas:

• Timely employer and employee contributions, comparing plan records with payroll records.
• Nondiscrimination testing results, confirming that any failures have been corrected.
• Compliance with distribution and loan program requirements.
• Plan expenses, including whether they are necessary and reasonable.
• Financial controls or other mechanisms that the plan sponsor uses to ensure conformity with federal retirement plan rules and generally accepted accounting principles.

The IQPA renders an “opinion” based on a review of the plan sponsor’s relevant financial records, reconciling these findings with the information presented in the Form 5500 filing with the DOL. On Form 5500, there are check boxes for four possible opinion options:

• Unmodified opinion — The IQPA concludes that the plan’s financial statements are presented fairly in all material respects.
• Qualified opinion — The IQPA concludes that misstatements are material but not pervasive, or the IQPA cannot obtain enough appropriate audit evidence on which to base an opinion.
• Disclaimer opinion — The IQPA cannot obtain enough evidence on which to base an opinion and concludes that the possible effects of undetected misstatements, if any, could be material and pervasive.
• Adverse opinion — The IQPA has obtained sufficient audit evidence and concludes that misstatements are both material and pervasive.

Obviously, any less-than-favorable opinion may raise a red flag with the DOL. Plan sponsors will want to work with their auditor to address any concerns raised by the IQPA before submitting the audit with Form 5500.

The Value of a 3(16) Fiduciary

Audits require a significant amount of time and input from employers who already have ongoing day-to-day job responsibilities. Audits are also very specific and time-sensitive. For many plan sponsors, the information discussed and requested can be overwhelming.

Fortunately, with Pentegra’s audit support services, annual retirement plan audits don’t have to be an anxious process for plan sponsors. As a 3(16) fiduciary, Pentegra works directly with the independent plan auditor. The plan’s account manager becomes the dedicated contact for the auditor, responding to questions and providing any requested materials to the auditor.

At Pentegra, we recognize how time‑consuming and stressful annual audits can be. We know because we’ve walked thousands of clients through this process as a fiduciary. And while audits are never fun, Pentegra can take the mystery — and most of the pain — out of the audit process.