What Will New Audit Standards Mean for ERISA Plan Sponsors?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

“We sponsor an ERISA plan that is subject to the audit requirements. We understand that the audit process is getting a bit tougher this year in light of Statement on Auditing Standards (‘SAS’) No. 136. How much extra work will the new requirements mean for us as a plan sponsor?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

SAS No. 136 adds a new auditing standard, just for employee benefit plans, to the American Institute of Certified Public Accountants professional standards. SAS No. 136 is mandatory for all audits of employee benefit plans that are subject to ERISA for plan years ending on or after December 15, 2021 (the 2021 calendar year for most plans). Your auditors, however, had the option to implement the standard early. So, it’s possible this standard has already been implemented in your employee benefit plan audit. In addition to SAS No. 136, the Accounting Standards Board adopted some other new standards, SAS Nos. 134 to 141. These new standards will be implemented on your employee benefit plan audit all at the same time. 

The new audit standards will certainly mean some extra work. You may also be required to make additional compliance representations in writing to your auditor. But, for most plan sponsors and plan administrators, it is not expected to be overwhelming. It will certainly mean more work on the part of auditors.

The most significant changes under SAS No. 136 concern “limited scope audits,” which are now referred to as ERISA section 103(a)(3)(C) audits. Under ERISA section 103(a)(3)(C), a plan administrator can elect to exclude from the audit statements related to a plan’s investment assets, if those statements are issued by a bank or insurance carrier and provided certain requirements are met. Under SAS No. 136, the information your auditor will request, and the audit procedures your auditor must perform in connection with this type of audit, have changed. SAS No. 136 will require the plan administrator to accept and acknowledge certain responsibilities when it elects an ERISA section 103(a)(3)(C) audit. For example, the plan administrator must acknowledge to the auditor the plan administrator’s responsibility to determine that the certified investment information excluded from the audit is appropriately measured, presented and disclosed. You should expect additional inquiries from your auditor as well.  For example, your auditor will likely ask how you determined that the entity preparing and certifying the investment information is qualified for the exclusion under ERISA section 103(a)(3)(C). 

SAS No. 136 also makes clear that while the ERISA section 103(a)(3)(C) audit does not extend to investment information that is properly certified, it does extend to other key financial information of the plan even if that information is included in the certified statement. This means that your auditor remains responsible for auditing participant data, contributions, benefit payments, participant account balances, earnings and allocations. This clarification shouldn’t be a change for most plan audits. 

Plan administrators that don’t elect the ERISA section 103(a)(3)(C) audit should still expect additional audit procedures and requests for beefed up management representations as a result of SAS No. 136. For example, you should expect to acknowledge your responsibility to maintain the qualified status of the plan, including plan documents that meet the qualification provisions of the Internal Revenue Code, and for operating your plan in conformity with those documents. Your auditor will be asking other questions about the qualified status of your plan, including whether you’ve performed discrimination testing, whether there have been operational failures, and whether you intend to correct those failures. You’ll also have to provide your auditor with a substantially complete Form 5500 before the auditor signs the audit opinion. Your auditor will be looking for any inconsistencies on your draft Form 5500 with the audited financial statements. 

If you have any questions about your responsibilities in maintaining an ERISA plan and your relationship with your plan auditor, consult an attorney who specializes in ERISA benefit plans. 


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.

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