With the Department of Labor’s release of its proposed conflicts of interest rule and recent court cases involving fiduciary duties, fiduciary responsibilities are getting a lot of attention. If you are a fiduciary for your company’s retirement plan, now is a good time to review what your role is and make sure you are meeting your obligations.
In our recent Employee Benefit Plan Benchmarking Survey, Aronson asked retirement plan sponsors about their governance practices, specifically whether they use an outside advisor and if they have a 401(k) committee. Not surprisingly, 80% of respondents indicated they did use an outside advisor, and 71% of those met at least annually. However, only 44% of respondents reported having a 401(k) committee.
Best Practice: The plan sponsor should establish a committee that meets regularly to discuss topics of importance to the plan, including a review of the investment options, investment performance and fees. Meetings should be held no less than annually, but semi-annual or even quarterly meetings can keep the importance of the plan at the forefront. Meetings that involve a discussion of the investments should include an outside investment advisor if investment expertise is not found on the committee. The committee should make changes to underperforming funds where appropriate and monitor investment fees. Keep minutes of these meetings that include the information reviewed and any fiduciary decisions made.
Fiduciaries must act prudently and manage plan assets solely in the interest of the plan’s participants and beneficiaries. With the heightened attention being focused on fiduciaries, it is important that those in this role understand their responsibilities. Many organizations offer fiduciary training, and it would be best practice for such training to be provided to members of the retirement plan committee.
For more information on fiduciary responsibilities and effective plan governance, please contact Aronson’s Employee Benefit Plan Services Group at 301.231.6200.
The Department of Labor (DOL) is preparing to release the results of another audit quality study performed on audits of employee benefit plans.* Based on comments made publicly, the report will show that audit quality continues to decline and is particularly poor when the auditor does not have retirement plan audit experience. Hiring the plan auditor is a fiduciary function, and a common misconception among plan fiduciaries is that, if an audit is found to be deficient, the accounting firm that performed the work is somehow in trouble with the DOL. Surprisingly, this is not the case. A deficient audit can subject the plan sponsor, not the accounting firm, to significant fines and penalties as authorized by Title I of the Employee Retirement Income Security Act of 1974 (ERISA).
Furthermore, under ERISA, failure to properly select and monitor service providers, including qualified auditors, exposes the plan administrator to potential fiduciary violations and civil penalties. The only real recourse the DOL has against auditors is to report the accounting firm to their state licensing board.
The DOL has stated that one of the main reasons these audits are deficient is the auditors’ lack of training and knowledge in areas unique to employee benefit plans. Fiduciaries should understand the importance of prior experience when considering hiring a plan auditor for the first time or in deciding to continue with existing auditors. The American Institute of Certified Public Accountants issued a plan advisory, “The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit.” This guide explains why your plan audit is important and provides excellent information on what factors to consider in evaluating different audit firms. It also provides an outline for developing a Request for Proposal (RFP).
The employee benefit plan audit season has begun. If you have not taken the time to evaluate the qualifications of your plan auditor, consider doing so now before it is too late!
For questions about benefit plan audits, please contact Aronson partner Kathryn Petrillo at 301.231.6233 or firstname.lastname@example.org.
*ERISA generally requires employee benefit plans with 100 or more participants to have an independent financial statement audit. The audit report must accompany the Form 5500 that is filed annually with the DOL.
Ask These Questions to Gauge Experience and Knowledge
Choosing a qualified benefit plan auditor can be a challenging process, particularly for the uninitiated. Selecting an inexperienced auditor or one with a less than stellar track record can have lasting ramifications on your plan. There are several factors to consider when evaluating potential auditors:
How to Pick a Benefit Plan Auditor
There are plenty of benefit plan auditors out there – over 7,000 in fact. However, don’t make the mistake of believing that just any company can effectively audit your plan. Department of Labor statistics indicate that one in three audits performed are deficient, and the DOL has made hundreds of referrals to the AICPA Ethics division for this poor work. Unfortunately, the negative exposure from a failed audit reflects on you, the plan sponsor, so it is important to select a firm you can trust. Here are some suggestions on how to find a qualified auditor:
It’s the time of year to start thinking again about the audit of your benefit plan. If you are happy with the service you receive, and your audit goes smoothly and the deadline is met, that’s great! However, if you typically just go through the motion of engaging the same firm you have always used, you may be doing yourself a disservice. Be sure to ask yourself these questions: