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A company’s 401(k) or other retirement plan is more than just another employment perk for many workers. These plans are often the primary retirement saving vehicles that individuals have to plan for and fund their golden years. According to a survey by Schwab, 87% of respondents indicated a 401k (or another retirement plan) is a “must-have” benefit. Given the importance of saving and perceived value, companies need to handle the administration of retirement plans delicately. While ERISA compliance is complex, one area where plan sponsors have control is in the selection of the benefit plan auditor. This vital function ensures the plan is operating according to established guidelines, but also creates the opportunity for operational improvements and best practices to be implemented. Unfortunately, not every company has an efficient audit experience, leaving them to look for an alternate solution. To help prospects and others, JLK Rosenberger has provided a list of tips to consider when selecting a new 401(k) auditor.
New Auditor Selection Tips
- Experience – It used to be widely-held that if a firm has experience with financial statement audits, they are qualified to audit a 401(k) or other retirement plans. However, a study conducted by the Department of Labor, Assessing the Quality of Employee Benefit Plan Audits, showed that auditors with less experience with these audits were more likely to commit errors. For this reason, when evaluating audit firms, it’s essential to understand the amount of experience they have. Be sure to inquire about plan size in terms of total participants, assets and which third party administrators for which they have worked. The more experience and “like-kind” clients, the greater the likelihood audit quality will be higher.
- Time Allocation – It’s important to ask bidders about the anticipated time that will be spent by staff level on each phase of the audit. This will permit management to compare “apples to apples” and uncover firms that rely too little or too much on one level of staff over another. If there are large variations in pricing, having this information will help to decode if it’s due to staff assigned or other reasons. Concurrently, this will also reveal to what extent partners and managers will be involved in the process.
- Pricing – Let’s face it; the cost is an essential factor for many companies. For this reason, it’s important to understand the respondent firm’s pricing structure clearly. Ask for details on multi-year pricing, one-time costs, and first-year audit costs. Getting this information as early as possible will help to minimize surprises and ensure there are reasonable expectations around the relationship.
- Additional Fees – It’s also important to understand what prior situations have triggered additional fees on other audits. For example, under what conditions would they seek additional fees during the first-year audit? What changes may result in additional fees being charged on subsequent year audits? This data will help to make the numbers more transparent and identify those firms who are willing to work with the plan sponsor.
- Training – Make sure to ask about the amount of benefit plan audit-related training the firm requires for staff. This will reveal how deeply committed the firm is to the plan audit business line and provide insights into the potential technical knowledge that team members may have. The greater the time and investment in training, the higher the likelihood mistakes, errors and omissions in the process will be avoided.
Change can be a difficult process but sometimes is needed when a professional relationship is not meeting expectations. When the decision to move on is made, it’s essential to ask the right questions of potential replacement firms to ensure you have access to as much information as possible. If you have questions about the information above or need assistance with your 401(k) audit, JLK Rosenberger can help! For additional information call us at 949-860-9890 or click here to contact us. We look forward to speaking with you soon.