What to expect to be asked for in an employee benefit audit

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

If your company sponsors an employee benefit plan with 100 or more participants, an audit may be required (for more on when an audit is needed read the Henry+Horne blog Does your employee benefit plan need an audit). After it is determined that an audit is necessary and the audit is soon to begin, you should begin preparing by gathering the necessary support for the auditors. Depending on the type of audit (limited scope or full scope) the support could be different.  We will focus on the most common support for a limited scope audit.

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First, and most importantly, the audit team will need a census that reconciles to the year-to-date payroll register. This must include all employees that received compensation during the year. This will be used to make employee selections for testing and typically the auditors will request documentation to support the following information:

  1. Social Security Number (SSN)
  2. Date of birth (DOB)
  3. Date of hire (DOH)
  4. Date of termination (if applicable)
  5. Total hours worked
  6. Total compensation
  7. Pay rate

For the demographic information (SSN, DOB or DOH) the ideal supporting document would be the Form I-9 as it will have the necessary information and will be signed by the participant. For selections that are hired three years prior to the audit the I-9 may no longer be retained since federal regulations only require these forms be retained for that long.  If the I-9 is not available, you can always provide other types of documentation if it is signed by the participant and details the necessary demographic information. If a selected participant was terminated, a form that is also signed by the participant to validate the date of termination would be required. This type of support could be an employee action form from human resources, or a letter of resignation.

The other participant information such as total hours worked and total compensation can be supported with a year-to-date payroll register. To substantiate that the hours worked and compensation can be relied upon, auditors will typically select a specific pay period to verify that, if hourly, the hours are supported and approved, as well as the pay rate was approved. A timesheet with the hours worked would be the ideal type of support for hours and a signed offer letter for the pay rate.

This support is not a comprehensive list but only some of the most common support requested for participant testing. There are other areas of the audit such as distributions, participant loans, rollover contributions, and investments that require additional support. Furthermore, these audit areas may require support from the third-party administrator.

If you are unsure if certain support meets the audit requirements always reach out to the auditors and discuss. This is common and can save valuable time from pulling support that may not be suitable.

Do you still have any questions? Please don’t hesitate to contact a Henry+Horne professional to assist you.

Michael Teasdale