With calendar year-end Form 5500s due on July 31,or October 15 with an extension (and still no COVID-19 filing relief as of the date this blog was published), it’s that time of year where plan sponsors begin thinking about their annual retirement plan independent audits.  However, these are not the only audits companies should be thinking about.

Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) routinely select qualified retirement plans for examination.  In the event of an audit by either agency, a plan’s records, procedures and processes will be examined.  If errors or deficiencies are found, at a minimum, corrections will be required, and in some instances, fines or sanctions will be levied.

The fact that some plans are required to undergo an annual audit by an independent public accounting firm for its Form 5500 filing may not be enough to ensure that a plan is in compliance with all applicable rules and regulations.  Independent audits conducted by experienced retirement plan auditors can be very helpful in identifying and correcting compliance deficiencies, however, an audit is not the same as a detailed compliance review and does not necessarily focus on common IRS and DOL audit findings.  While an independent audit covers certain plan operations, its primary purpose is to render an opinion on a plan’s financial statements.  In particular, independent audits often do not focus heavily on a plan sponsor’s compliance with its fiduciary duties.  Additionally, independent audits may not focus on certain areas if those areas are deemed to be “immaterial” to the plan’s financial statements. 

Ensuring a plan is in compliance with both ERISA and the tax code before being contacted by the IRS or DOL is the best insurance against protracted agency audits, potential fines and the legal costs associated with plan corrections.  In addition, compliance with a plan sponsor’s fiduciary duties will greatly reduce a plan’s litigation risk from lawsuits brought by plan participants.