Be Prepared for Stricter Scrutiny of Employee Benefit Plans in 2016 by Lisa Interian, CPA
Posted on January 25, 2016 by
Sponsors of employee benefit plans will need to take on more responsibilities to keep up with heightened regulatory scrutiny in 2016. Included in a list of priorities recently issued by the Internal Revenue Service (IRS) is a narrow focus on internal compliance controls of the “operation and form” of employer-sponsored retirement plans. According to the IRS, some of these benefit plans have a “historical pattern of non-compliance” and will therefore become subject to limited Employee Plans Team Audit (EPTA) audits, which will help the IRS determine if a more comprehensive audit is required.
With this in mind, retirement plan sponsors should respond promptly to EPTA notices from the IRS and take action to voluntarily correct any plan errors to avoid a more intense and expanded IRS examination. Moreover, sponsors should make every effort to keep up with evolving regulations that impact the way in which they administer their plans and protect participants’ investments. Following are just some of the issues that are coming under increased regulatory scrutiny.
Know Your Fiduciary Responsibilities and Document Your Actions
In a unanimous decision, the Supreme Court in 2015 reaffirmed that businesses sponsoring 401(k) plans have a fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA) to prudently monitor investments, dispose of inappropriate assets and minimize management plan fees on a continuous and regular basis that may extend beyond the six-year statute of limitations. The key takeaway from the Tibble v. Edison decision is a reminder of the important role plan sponsors play in overseeing all aspects of their retirement benefit plans. While the Court declined to list all of a fiduciary’s responsibilities, sponsors should take special care in the hiring of well-vetted and qualified third-party administrators, auditors and other consultants charged with fiduciary duties. Failing to meet these responsibilities may put plan sponsors at risk of being held personally liable for their actions or inactions. Take time to understand all your fiduciary responsibilities, seek advice of qualified advisors and document key decisions to support your compliance.
Choose a Qualified Auditor
Among concerns recently expressed by the Department of Labor is a high deficiency rate for employee benefit plan audits. These issues can jeopardize a plan’s compliance with reporting and disclosure standards established by the Employee Retirement Income Security Act of 1974 (ERISA) and put plan assets in danger.
Federal law requires that plans with 100 or more participants hire an experienced, independent, certified or licensed accountant to conduct an audit of their financial statements and the integrity of their plan’s financial assets. The DOL found a direct correlation between the auditor’s experience and the rate of deficiency, noting that CPAs performing the fewest number of employee benefit plan audits annually had a 76 percent deficiency rate.
In order for to meet the unique audit and reporting requirements of employee benefit plans, the Department of Labor advises that plan administrators select a CPA with the knowledge, experience and expertise that conforms to professional auditing requirements. Among its recommendations, the DOL urges plan sponsors and administrators to consider the following factors when assessing a CPA’s qualifications:
- The number of employee benefit plans the CPA audits each year, including the types of plans;
- The extent of specific plan audit training the CPA received;
- The status of the CPA’s license with the state board of accountancy;
- Whether the CPA has been the subject of prior DOL findings or referrals, or has been reported to a state board of accountancy or other agency for investigation; and
- Whether the CPA’s employee benefit plan audit work has been peer reviewed and whether such a review resulted in negative findings.
As sponsors of employee benefit plans, businesses are responsible for administrating all aspects of their plans, including ensuring promised funds will be available for employees. Hiring an auditor to conduct a quality audit is a fiduciary duty that businesses should address with special care to avoid personal liability for failure to complete and file accurate annual returns.
Know What Has and What Hasn’t Changed as to Annual Filings
Included in the recently enacted Fixing America’s Surface Transportation (FAST) Act of 2015, is a repeal of a provision enacted in July that extended filing deadline for sponsors of calendar year employee benefit plans. Effective immediately, the maximum extension for filing Form 5500 will go back to October 15, two-and-a-half months after the general filing deadline.
Navigating the complexity of retirement plan compliance and enforcement is a difficult task that plan sponsors should undertake only under the guidance of experienced advisors.
Berkowitz Pollack Brant and its affiliate Provenance Wealth Advisors (PWA) have an experienced and qualified employee benefit plan service team that works with businesses of all sizes and across all industries to meet the rigorous compliance issues associated with establishing, maintaining and auditing employee benefit plans.
About the Author: Lisa N. Interian, CPA, is an associate director of Audit and Attest Services with Berkowitz Pollack Brant, where she performs retirement plan audits and works with privately held companies in a range of industries to meet their reporting and compliance needs. She can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at email@example.com.