Pub. 6 2015 Issue 4

www.wvbankers.org 24 West Virginia Banker A s a heavily regulated industry, most every banker is aware of and expects a yearly financial statement audit from a CPA firm, a safety and soundness exam from your designated regulator every 12-18 months and engagements with third parties for a myriad of other outsourced arrangements. As if these nu- merous audits are not enough, is your financial institution aware of employee benefit plan audits and what triggers this audit? Not knowing these requirements could cost the financial institution up to $50,000 in DOL penalties per annual 5500 report filing requirement missing an audit report. What Triggers an Employee Benefit Plan Audit? The audit requirement for employee benefit plans is documented in the Federal Form 5500 instructions and in accordance with Title 1 of the Employee Retirement Income Security Act of 1974 (ERISA). While every qualified retirement plan must file the Form 5500, only Plans that are considered “large” plans must submit an independent auditor’s report with the filing of Form 5500. What is a “large” plan? A “large” plan is defined as a plan that has 100 or more eligible participants as of the first day of the plan year. Plans with fewer than 100 eligible participants at the beginning of the plan year are considered “small” plans and are exempt from the audit requirement. As with most regulations, there is an exception to the annual au- dit requirement for “large” plans called the 80/120 rule. Pursuant to DOL Regulation 29 CFR 2520.103-1(d), plans that have be- tween 80 and 120 eligible participants at the beginning of the plan year may complete the Form 5500 in the same category (large plan or small plan) as was filed for the previous year. Plans that file the Form 5500 as a “small” plan pursuant to the 80/120 rule will not be required to have an audit of their financial statements. Once the Plan exceeds 120 eligible participants at the beginning of the plan year, the Federal Form 5500 requires an audited finan- cial statement. Example: A plan had 90 eligible participant and files as a “small” plan in 2015. On January 1, 2016, the Plan had 119 eligible participants. Using the 80/120 rule, the Plan can elect to file as a “small” plan and would not be subject to the audit requirement in Plan year 2016. Once the eligible participant count rises to an excess of 120, the Plan would require an annual audit. What is the Definition of Eligibility? The most common misconception while determining if your institution needs an audit is that the requirement is based on the number of plan participants and not the number of eligible plan participants. For example, at January 1, 2016 there are 95 people enrolled in the plan (current participants and termed employees with remaining account balances); however, the organization has 50 individuals who are eligible to participate in the Plan but opted-out. What is the number of eligible plan participants as of January 1, 2016? 145. Therefore, the Plan is considered a “large” plan and requires an audit. In conclusion, the determination of an employee benefit plan au- dit requirement can be confusing. As financial institutions grow in total asset size there is typically a correlating increase in FTEs. Financial institutions should monitor this growth and assess your employee benefit plan audit requirement on a yearly basis. The following decision tree excerpted from the AICPA Employee Benefit Plan Audit & Accounting Guide may help in this determi- nation process. n Does Your Financial Institution Need an Employee Benefit Plan Audit? By Susan A. Barber, CPA, CGMA Partner, Arnett Carbis Toothman LLP Susan Barber, CPA is a Partner in Arnett Carbis Toothman LLP Financial Institution Service Group as well as the Coordinator for the Employee Benefit Plan Practice. Mrs. Barber can be contacted at 800-642-3601 or susan.barber@actcpas.com.