Chicago employers that undergo an annual audit of the retirement plan will soon see significant changes to the process. In fact, benefit plan audits are about to undergo the biggest change in more than 20 years thanks to modifications outlined in Statement on Auditing Standards (SAS 136), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to Employee Retirement Income Security Act of 1974 (ERISA).
Driven by the high volume of plan deficiencies, including insufficient testing and improper documentation, SAS 136 most notably shifts more responsibility to plan sponsors and modifies the form and content of the audit report. Although these changes were originally set to be effective for applicable periods ending or after December 15, 2020, implementation was delayed for one year due to the pandemic. As the compliance deadline has arrived, it is essential for plan sponsors to understand the changes. To help clients, prospects, and others, Selden Fox has provided a summary of key details below.
Expanded Role of Management and Plan Sponsors
Management will need to put in writing several acknowledgments before the audit can begin. These are above and beyond what is already a prerequisite in AU-C 210, “Terms of Engagement,” which requires management to use an acceptable financial reporting framework, among other items.
SAS 136 takes these preconditions a step further. Management will also need to acknowledge in writing its responsibility to:
- Maintain a current plan document, including amendments
- Administer the plan
- Determine plan transactions conform with plan provisions
- Maintain participant records to determine the benefits due
The new SAS also requires a draft of Form 5500 that is substantially complete to be provided to the auditor prior to dating the audit report. This has been common practice in most benefit plan audits, but the new SAS makes it a requirement.
If the Plan Sponsor elects to have a Section 103(a)(3)(C) audit, management must also acknowledge and understand its responsibility to determine:
- The Section 103(a)(3)(C) audit is permissible
- The investment information is prepared and certified by a qualified institution
- The certification meets the requirements of CFR 2520.103-5
- The certified investment information is appropriately measured, presented and disclosed
The Plan’s third-party service providers can help to answer some of these questions. The Plan Sponsor should maintain documentation of this assessment.
New Auditor’s Report Under SAS 136
Prior to SAS 136, many Plan Sponsors opted for a “limited scope audit”, in which a Disclaimer of Opinion was issued because auditing procedures were not performed over certified investment information. SAS 136 eliminates the “limited scope” audit but allows for an “ERISA Section 103(a)(3)(C) audit”. The new Section 103(a)(3)(C) audit allows for similar procedures to be performed over certified investment information, but this no longer results in a Disclaimer of Opinion. The new opinion will provide information on procedures performed both on certified and noncertified information and provide a new basis for opinion section.
Communication With Management or Those Charged With Governance
If reportable findings are identified during the audit, the new SAS requires these must be documented in writing to those charged with governance. Reportable findings include:
- An identified instance of noncompliance or suspected noncompliance with laws or regulations
- Based on professional judgement, a finding that is significant and relevant to those charged with governance and their responsibility to oversee the financial reporting process
- An indication of deficiencies in internal control that have not been communicated to management by other parties and based on professional judgement, require management’s attention
Exceptions to SAS 136
SAS 136 applies to audits of single employer, multiple employers, and multiemployer plans subject to ERISA, most commonly 401k and 403b plans. Plans that are not subject to ERISA should not make the changes required by this SAS.
Contact Us
The benefit plan audit process will be significantly different for many Chicago companies in 2022. As a result, it is important to become familiar with the changes and new expectations placed upon management prior to audit commencement. If you have questions about the information outlined above or need assistance with your 2021 plan audit, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
