The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in Oklahoma is representative of a common question related to Form 5500 reporting. The advisor asked:
“When conducting an audit report for the retirement plan’s Form 5500 report, what criteria should a plan sponsor use to select a qualified accountant?”
Highlights of Discussion
- The DOL has compiled several items to help plan sponsors prudently select an independent qualified plan accountant (IQPA) for Form 5500 reporting purposes.
- The first piece of helpful information from the DOL is the booklet, “Selecting an Auditor for Your Employee Benefit Plan.” This covers: (1) selecting an auditor; (2) what you should know about the audit; (3) reviewing the audit report; and (4) other resources.
- The DOL also offers an Interpretive Bulletin that contains guidelines to determine when a qualified public accountant is considered independent for the purposes of auditing retirement plans.
- Third is a study the DOL released in May 2015, "Assessing the Quality of Employee Benefit Plan Audits." The Learning Center has developed the following additional IQPA questions for use by plan sponsors and plan service providers to help them better assess the competency of an IQPA:
• Do you specialize in retirement plan audits? The study found a clear link between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed. CPAs who performed the fewest number of employee benefit plan audits annually had a 76% deficiency rate. In contrast, the firms performing the most plan audits had only a 12% deficiency rate.
• What is the size of your firm’s retirement plan audit practice? The smaller the firm’s retirement plan audit practice, the greater the incidence of audit deficiencies.
• Are you a member of the American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Audit Quality Center? IQPAs who were members tended to produce audits with fewer deficiencies.
• Have you had specific training in preparing audits for retirement plans? As the level of plan-specific training increased, the percentage of deficient audits decreased.
• Are you well-versed in the reporting and disclosure requirements of ERISA? Audit areas that are unique to retirement plans, such as contributions, benefit payments, participant data and party-in-interest/prohibited transactions, lead the list of audit deficiencies.
- Selecting an IQPA for a plan is a fiduciary function. ERISA Section 103(a)(3)(A) requires the plan administrator of an employee benefit plan with 100 or more participants to engage an IQPA to audit the financial statements using generally accepted auditing standards (GAAS). Further, such an administrator must prepare an opinion as to whether the financial statements — and any supplemental schedules required to be included in the annual report — are presented fairly in conformity with generally accepted accounting principles (GAAP).
- The DOL’s 2015 study found that 39% of the sample of Form 5500 audit reports reviewed contained major deficiencies. Only 61% of the audits fully complied with professional auditing standards or had merely minor deficiencies under professional standards. This result continues a downward trend in audit quality based on prior years’ audit studies.
Sponsors of qualified retirement plans with 100 or more participants generally must engage an IQPA for annual Form 5500 reporting purposes. Selecting the right IQPA is an important fiduciary function. Following DOL guidelines and documenting the IQPA selection process are important procedures that can help mitigate liability.
The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice. Consumers consult with their tax advisor or attorney regarding their specific situation.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.
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