While most companies understand that an annual financial statement audit is required, many companies are surprised when they find out their employee benefit plans also need to be audited. Companies may not think they really need to pay attention to the audit requirement, but these types of audits are important, and are something the IRS and Department of Labor take very seriously.
“This is the time of year when companies should start looking at whether or not their plans need an audit,” says Danielle B. Gisondo, CPA, the principal-in-charge of the benefit plan audit group at Skoda Minotti.
From a timing perspective, once you get through your year-end accounting and tax work — around April/May — that is when you should start thinking about your benefit plan and Form 5500 filing requirement.
Smart Business spoke with Gisondo about how employers can tell if their plan will require an audit, and what to expect from the process.
When is a benefit plan audit required?
What actually triggers the plan audit requirement is the number of eligible employees a company has. Generally, when a company has more than 100 eligible employees, an annual audit is required. However, you can’t just count all the people participating in the plan. Eligible employees are those currently participating as well as those who elected not to participate in the plan.
Companies with less than 100 eligible employees only need to file the Form 5500 as a small plan, they do not need an audit. But companies with more than 100 eligible employees have to file the tax return along with the annual audited financial statements.
In order to abide by IRS regulations, you are required to file a Form 5500 for most benefit plans. For a calendar year-end plan, this should be filed by July 31, or you can file for an extension, which gives you until October 15. Typically, April or May is when people start to get questionnaires and draft Form 5500s from their TPA, so it is a good time to address the audit requirement question.
The Department of Labor imposes strict financial penalties when Form 5500 either isn’t filed at all or is filed improperly. These penalties are assessed per day and can be as high as $50,000 per report per year for a deficient filing.
