(b)lines Ask the Experts – Is A Financial Audit a Good Idea for a Non-ERISA Plan?

"We are a governmental 403(b) plan sponsor.

“We realize we’re not subject to the annual Form 5500 reporting requirement, as well as the related annual audit requirement; however, our plans are quite large, and our recordkeeper opined that it might be a ‘good idea’ for us to complete a plan audit. What say the Experts?”

Michael A. Webb, vice president, Cammack Retirement Group, answered: 

In the Experts experience, it is a relatively rare event that governmental plans volunteer to go through the same type of audit that large Employee Retirement Income Security Act (ERISA) plan sponsors must undertake for Form 5500 purposes. The reason is that there is a fairly significant amount of work and expense involved, though the expense is typically nominal relative to the size of a larger plan.

In the uncommon instances where we have seen audits, it is typically with respect to the largest retirement plans of states, where either state law or the relevant state office (comptroller, treasury, etc.) may require that all such plans be subject to an audit.

But is an audit or compliance review a bad idea? Not necessarily! Because audited financials are NOT required for such plans, in some instances the recordkeeping for such plans may not be subject to the same level of review that is present with ERISA plans. This is especially true for 403(b) plans, which typically lack trust-level accounting (since 403(b) assets are almost never held in trust), and where assets may be invested in a variety of individual annuity contracts/custodial account agreements.

If you’ve experienced some recordkeeping errors with your plans, it might indeed be prudent to go through the plan audit or a separate compliance review process, just to see what is discovered. Although no audit or compliance review will be guaranteed to find all issues that the Internal Revenue Service (IRS) might raise, it might indeed uncover some compliance defects that can be corrected well in advance of when the IRS might come knocking at your door.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to rmoore@assetinternational.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.