Understanding ERISA and Its Impact on Benefit Plan Audits

Navigating the complexities of employee benefit plan audits begins with understanding the foundational legislation that governs them: the Employee Retirement Income Security Act of 1974 (ERISA). Designed to protect participants in employer-sponsored benefit plans, ERISA sets rigorous standards for fiduciary conduct, reporting, and disclosure, including the requirement for independent audits of certain plans.

Why ERISA Matters

ERISA mandates that benefit plans with 100 or more participants must undergo annual audits by a qualified, independent CPA. These audits are not merely a compliance checkbox—they serve as a critical tool for ensuring the integrity of plan financial statements and the reliability of information provided to stakeholders. Audits help verify that plans are operating in accordance with United States Generally Accepted Accounting Principles (GAAP) and Department of Labor (DOL) regulations, and they often uncover opportunities to strengthen internal controls and operational efficiency and correct noncompliance.

Audit Requirements and Qualifications

Auditors performing ERISA plan audits must meet specific qualifications, including independence from the plan and its administrators. Firms must also maintain documentation of continuing professional education (CPE) to ensure auditors are up to date on ERISA standards. For example, Yeo & Yeo requires professionals managing or signing off on ERISA audits to complete at least eight hours of benefit plan-specific CPE within a three-year period.

The Audit Process and Preparation

At Yeo & Yeo, the audit process is structured into four phases: kickoff and inquiries, document requests, participant sample selection, and final testing. The firm uses Suralink, a secure cloud-based portal, to manage document submissions and streamline communication with clients. This system enhances transparency and helps clients stay on track with audit timelines.

Preparing for an audit can be daunting, but the following steps can help ensure the process runs smoothly and successfully. Plan sponsors should:

• Review prior year findings and address any unresolved issues.
• Organize payroll and plan documents for easy access.
• Coordinate early with third-party administrators to ensure timely delivery of audit packages.
• Respond promptly to document requests through platforms like Suralink.

Consequences of Noncompliance

Sometimes, noncompliance with ERISA surfaces and the consequences must be dealt with. Failure to comply with ERISA audit requirements can result in significant penalties from the DOL. Moreover, plan administrators may be held personally liable for losses if they fail to meet fiduciary standards. Selecting a qualified auditor (one with a clean peer review report and relevant experience) is essential to mitigating risk and ensuring compliance.

Conclusion

As organizations grow, so do the responsibilities tied to employee benefit plans. Understanding ERISA and its audit implications empowers plan sponsors to meet regulatory requirements, protect participants, and improve financial reporting. For firms like Yeo & Yeo, delivering high-quality audits with a client-first approach ensures that benefit plans remain compliant and well-managed.