Benefit Plans Now Have New Audit Requirements for Auditors

In order to provide improved transparency and consistency of ERISA plan financial audits, the AICPA issued Statement on Auditing Standards (SAS) No. 136.

The changes introduced by this new standard are some of the most significant changes impacting the Employee Benefit Plans since 1974 when Congress enacted the Employee Retirement Income Security Act (ERISA) to help protect retirement benefits for workers covered by private pension plans.

In addition to establishing minimum standards for benefit accrual, funding and vesting, ERISA section 103(a)(3) introduced the requirement for employee benefit plans with 100 or more participants to be audited by an independent qualified public accountant.

ERISA’s independent audit requirements are administered and enforced by the U.S. Department of Labor (DOL). The ERISA regulations have not changed rather than the AICPA standard governing how auditors and plan sponsors can comply with ERISA Section 103(a)(3)(C) audit election.

The new standard (SAS No. 136) replaces the “limited-scope audit” with the ERISA Section (a)(3)(C) audit and prescribes certain new performance requirements and changes the form and content of the auditor’s report and expands the responsibilities of both the auditor and the plan sponsor. The new audit standard is effective for ERISA plan audits for periods ending on or after December 15, 2021.

New requirements for auditors:

• Engagement letter acceptance including additional management representations
• Performing risk assessment procedures related to the plan instrument, plan tax status and prohibited transactions and responding to identified risks
• Communicating additional findings (reportable findings) to plan sponsors
• Issuing a new form of auditor’s report

While an ERISA Section 103 (a)(3)(C) audit still allows a certification statement concerning investments and investment income, the auditor can no longer issue a disclaimer of opinion. Instead, the auditor must issue two opinions – one on the form and content of the certified information, the other on the fair presentation of information in the financial statements not covered by the certification.

New requirements for plan sponsors:

• To elect to have a ERISA Section 103 (a)(3)(C) audit, plan sponsors must confirm they are eligible for this exception to the full-scope audit and then convey this to the auditor in writing
• In the engagement letter, they must acknowledge their responsibility for the administration of the plan including maintaining the current plan document and all amendments
• They must provide a written statement guaranteeing that plan transactions and financial statements are consistent with plan provisions, and that sufficient participant records are being kept to determine benefits due
• They must make sure that plan investment information is prepared and certified by a qualified institution (bank or similar institution, insurance company)