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ARA Weighs in on ERISA Plan Audits

Defined Benefit Plans

American Retirement Association Chief Government Affairs Officer Will Hansen and past ASPPA President Stephen Dobrow offered testimony concerning benefit plan audits and how they may be improved at the June 25 meeting of the Department of Labor’s ERISA Advisory Council.

The Council held the public hearing, “Beyond Plan Audit Compliance: Improving the Financial Statement Audit Process,” in order to obtain recommendations on actions that may be taken to increase the knowledge and understanding of plan administrators who procure financial statement audit services and to improve the procedures they implement in selecting an auditor.

Hansen noted that in reviews of audits the it has conducted, the DOL has “consistently found a material number of errors”: 


% of Audits with Errors 







Hansen said that in 2010, the ERISA Advisory Council cited four reasons for these errors:

  1. auditor’s inadequate technical training and knowledge
  2. auditor’s inadequate familiarity with employee benefit plans
  3. lack of quality control in the audit process
  4. failure by the auditor to understand the requirements for limited scope audits

Hansen noted that in its 2010 report, the Council suggested improving the quality of plan audits and that the American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board addressed these issues in the Statement on Auditing Standard, “Forming and Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA” (EBP SAS), which is to be issued in final form this summer. 

“ARA believes that AICPA’s changes on the auditor’s side are sufficient to address the issues with audits,” said Hansen. “Plan sponsors continue to be proficient at selecting auditors, preparing for audits, communicating with auditors, and adopting changes based on the results of the audit,” he continued. “While we are appreciative of DOL’s goal of enhancing the value of the annual financial statement audit process, we are hesitant to endorse additional, unnecessary efforts in this arena that could unduly burden plan sponsors,” Hansen said.

Hansen added that in the 2010 report, the Council wrote that audit problems do not arise from a “lack of adequate codification of practices.” Likewise, in a 2015 report the DOL determined, he said, that lack of understanding of current regulations or lack of utilization of technical material already available was one explanation for the errors the DOL found in its review of audits. In the report, the DOL recommended audit improvements that did not include additional regulations but instead focused on better educating auditors.

“ARA believes the same can be said again,” said Hansen. “The audit process today does not suffer from a lack of DOL, or for that matter, AICPA, guidance. Significant numbers of plan sponsors are well versed in the audit process. Across the country, plan sponsors successfully complete the audit process each year and the vast majority of audits are properly completed.,” he added. 

“We disagree with the idea that plan sponsors are not ‘sufficiently availing themselves of the audit process,’” as written in the Issue Statement the Department of Labor’s Employee Benefits Security Administration (EBSA) released this year, he told the Council. “Moreover, satisfactory resources already exist to help plan sponsors with any questions that arise surrounding the audit process,” said Hansen.“We have no doubt that EBSA is well intentioned in seeking to make available additional resources to plan sponsors to enhance the value of the annual financial statement audit process, but such efforts should not be duplicative of extensive, existing private sector efforts.

“We believe any additional requirements placed upon plan sponsors would further discourage employers from offering plans,” said Hansen, continuing, “Expanding availability of workplace savings is the key to improving the retirement system for all Americans. If changes, such as additional requirements on plan sponsors, are made that discourage employers from sponsoring plans, we have hurt, not helped, our universal goal. We should be considering measures to make it easier for employers, particularly small businesses, to offer a workplace savings plan to their employees, not additional administrative requirements.

“We urge EBSA to retain the audit process in its current form without imposing additional obligations, tasks or procedures on plan sponsors. The current system works well from the plan administrator perspective and we are not aware of any issues that need to be addressed by DOL,” Hansen asserted. 

Dobrow, who served as ASPPA President in 2009, suggested that the way that audits are viewed — as a necessary evil at best — may change if several actions are taken: 

  • Change the audit engagement process. He suggests that the expectation be that the engagement is made with the plan committee,which includes the whole group of fiduciaries and service providers.
  • Engage financial advisors. Financial advisors are eager to find new ways to add value to the plan committee and often are the most knowledgeable member of the plan’s steering committee, Dobrow said. “But it is rare that they are asked to get involved in planning the audit, or participate in setting audit expectations, or be present when the plan sponsor is getting the results first hand from the audit team,” he observed. “If the department made it known to everyone that the audit partner should strive to have the audit team engage with a wider group, and it became a reality, we stand to gain value,” Dobrow continued.
  • Better educate plan sponsors and advisors. “Educating the advisors is one of the best ways to educate the plan committees,” Dobrow said.
  • Look to the Form 5500. “If the Department is serious about improving compliance, then the most effective way to bring focus to compliance issues is with the Form 5500 itself. The IRS has been trying for years to get those difficult and pesky questions about coverage, participation, testing, documents and other compliance issues put back on the Form 5500, so that these issues can be identified and tracked. It makes sense that what gets measured, gets managed. I think auditors are very good about reviewing the answers on the Form 5500 and related schedules. Steering them toward the issues that are important can only result in better outcomes,” said Dobrow.