The extended deadline to complete an audit for Form 5500, "Annual Return/Report of Employee Benefit Plan" is Oct. 16, 2023, for employers that successfully filed a Form 5558, "Application for Extension of Time to File Certain Employee Plan Returns."
With a little less than a month remaining, it is still possible to complete that audit and avoid any penalties and interest that may come with missing the deadline, but there is not much time, and employers need to act quickly.
Less than a month is a small window for an auditor to complete their work. However, if you are still seeking an audit before the October 16 deadline, there are a handful of critical items that employers will need to assemble and provide to their auditor to expedite the process and meet the deadline.
Items needed to complete an employee benefit plan audit
The first step is to ensure you know who your trustee is and reach out to them to ensure the auditor's package and draft 5500 are prepared and ready to use as soon as you've selected your audit firm.
The second step would be to enlist your human resources and payroll departments to gather the payroll-related items that the auditor will be asking for. Some examples include, but are not limited to, the following:
- You will need to provide a complete census of all employees who were paid during the 2022 calendar year. This census will be used to reconcile the year-to-date payroll report along with specific payroll registers from requested dates during the year.
- Payroll may also be helpful in providing a remittance schedule that shows each pay period's remittances to the trust and explanations for any variances.
- Your payroll department will also need to provide a payroll process write-up, including providing information related to SOC 1 User Entity Controls.
- Minutes related to the plan.
- Employers must provide evidence of an ERISA fidelity bond that covers the entire year of the plan audit that can be obtained from an insurance company, brokerage or bank.
- Provide copies of any SOC 1 reports from the service providers for the plan, including documentation of the user entity controls that the plan sponsor has in place.
Other examples of items that will be requested by your auditor include the plan document, an adoption agreement (if applicable), a summary plan description, an IRS determination letter or opinion letter, an investment policy statement (if you have one) and the trust agreement between the plan and the trustee or custodian.
It's very helpful if the plan sponsor can grant access to the auditor to the trustee or custodian website. A significant portion of the needed items can be pulled down from the website, which most auditors know how to navigate, to avoid unnecessary time spent by the plan sponsor gathering information.
Once the auditors have made selections, they will request additional information from both the trustee and the plan sponsor. Some of the items they will request from the plan sponsor are I-9s for the specific participants selected, as well as approved pay rates.
SECURE Act 2.0 rule may change audit requirements
Under the current method for employee benefit plan audits, defined benefit, defined contribution and multi-employer plans must count all eligible participants, regardless of whether they have an active account balance, when looking at the audit requirement. Under the new method, effective for plan years beginning on or after Jan. 1, 2023, plans must only count participants with an account balance.
The change from the Department of Labor comes as an effort to reduce expenses for small businesses that maintain and offer 401(k) plans for their employees, in hopes of encouraging more small businesses to offer these same benefits. The DOL believes the change to only counting participants with an account balance will relieve or eliminate the unintended result of a 401(k) plan being subject to an audit merely due to a change in the law.
This new rule from SECURE 2.0, combined with a "cash-out provision" for plan sponsors to automatically cash out small account balances (less than $5,000) without the owner's consent upon their termination of employment, may further reduce the number of plan participants considered in the requirement for an employee benefit plan audit.
These new rules are not yet in effect, and the current rules still apply for any audits that would be required by Oct. 16, 2023.
