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ERISA (The Employee Retirement Income Security Act) exists for the protection of both employers and employees, establishing standards for employee benefit plans that must be provided by most private employers. However, once the number of eligible participants reaches over 100, an employee benefit plan audit becomes necessary. If you’re going through this for the first time, hiring an independent CPA who provides comprehensive accounting services in Kearny, NJ is a must to make sure that your EBP complies with all relevant legislation.
What is an Employee Benefit Plan Audit?
The main objective of this audit is to gauge your EBP’s ability to cover all current and future benefits including payments, assessing the overall viability of your plan. This is required by the DOL for companies with over 100 eligible participants. The audit must be conducted by an independent party and its purpose is also to uncover areas for concern or improvement in your company’s management of the employee benefit funds. As such, you will need a trustworthy CPA who offers a wide range of accounting services in Kearny, NJ.
The audit will typically cover the following areas:
- Data of participants
- Plan obligations and liabilities
- Employer and employee contributions
- Benefit payments
- Loans to participants
- Allocations of participants, if applicable
- (Investments and investment income of the EBP (for full-scope audits)
- Administrative expenses
What Happens During the Audit?
Financial statements are examined by the auditor to check whether there are mistakes or inconsistencies caused by unintentional errors or fraudulent reports. The auditor can also provide points for improvement and assistance to help the company enhance its EBP operations. Additionally, the DOL depends on the auditor’s reports regarding the accuracy and fairness of the information submitted by the company during their annual EBP report (filing of form 5500).
What Happens if a Company Doesn’t Complete Its Annual Audit?
The IRS can hand out serious penalties to companies failing to perform this mandatory audit. Penalties by the IRS for late findings can range from $25 a day up to a maximum of $15,000. Meanwhile, the DOL’s late filing penalty can reach up to $1,100 a day with no maximum amount. To avoid penalties and added headaches, make sure to hire a trusted CPA firm.
Benefits of an EBP Audit
While avoiding penalties may be the goal for most companies, carrying out an EBP audit can also provide a lot of benefits for companies that are looking to improve or even safeguard their benefit plans. Serving as a wellness check, an EBP audit ensures that all contributions and payments are made on time and that the plan is in compliance with all relevant legislation and regulations. This annual audit can also uncover points of non-compliance with DOL and ERISA rules and regulations which can incur additional problems for the company. With yearly audits, you can make sure that your company can make the necessary improvements to make your EBP management easier and ensure that all participant accounts are accurate and complete.
Looking for a trustworthy partner for your annual employee benefit plan audit? Get in touch with the offices of Nicholas J. Coco. He is a Certified Public Accountant who offers complete accounting and tax services in Kearny, NJ. Call now at 201-955-3100.