I heard it again last week…every time I turn around I hear myths about ERISA retirement plans from plan sponsors, fiduciaries (known and some that have no clue they are ones) and even third party providers. This time it was:

“I don’t need to worry about my ERISA plan, my CPA audits it every year and he(she) reviews everything and tells me it is okay.”

WRONG!

As a fiduciary myself (and I have been my entire professional career) and a fiduciary consultant this is one of the most harmful (there are many harmful things) a fiduciary can think.

We have heard this statement from Board members, CFOs, CEOs, HR executive,…even small firms tell us that large firms are protected because of this.

Some CPAs advertise a “Plan Audit.” In almost all cases, it is only a 5500 financial statement audit as required by the law. It is not a true plan audit. It does not review most aspects of your plan.

The annual 5500 audit by a CPA is a necessary check and a very important one. It is a great start. Beyond being required, it helps a plan verify it is doing some of the things they should be doing for the plan participants, but it only covers a fraction of what a plan needs to review.

For ERISA plans, the government requires plans over 100 participants have their financial audited by an independent CPA. Again, it isn’t a “plan” audit. It is an audit of the financial statements. It tests financial statements and financial information. True it includes some internal controls, but only controls related to the financial statements.

Plans that annually have 5500 audits routinely have breaches in their fiduciary duties and fines that need to be paid to the regulators. Not because of the items covered by the 5500, but mainly because of the items NOT covered by the audits. Same holds true with litigation. Look at the current and past lawsuits…plans are sued for issues NOT covered in an annual 5500 audit.

Your retirement and welfare plan is made up of more than simple financial statements. Click here to see a side by side comparison of what s covered in a 5500 Audit and what is reviewed during DOL and IRS examinations. The examinations cover things NOT covered in an annual 5500 Audit such as

  • If you are adhering to the plan document (they do some limited work on this)
  • How you monitoring your providers
  • Contracts
  • Fee benchmarking
  • Review investment choices
  • §404c compliance
  • §408(b)(2)
  • Revenue sharing agreements
  • Communication with participants
  • Committee minutes

The list goes on and on. Click here to see a side by side comparison.

To trust and believe that your annual 5500 financial audit is ALL you need is putting all fiduciaries and your participants at risk. Many CPAs we talk to worry their clients have a false sense of security due to the use of the word “audit” tied to the 5500 financial statement audit. They agree what they do is important, but not enough to ensure compliance.

Having a review of your plan by an internal auditor, independent qualified plan consultant or best of all, using The FIRE System helps you have a more comprehensive audit and compliance review of your plan.

As Sean Connery said as Jimmy Malone in the Untouchables:

"He pulls a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue! That's the Chicago way, and that's how you get Capone."

So you decide, do you feel prepared to battle with an army (DOL/IRS/plaintiff’s attorney) with just a sharp knife or do you want to be better prepared?

We have battled with regulators via an examination or two. We were well-prepared (and had ALL of our weapons in place) before we ever received a notice. It was a simple process that was quick and painless. We walked away with a smile on our faces to live another day – no fines and small issues. So you decide? Do you just bring a knife or do you do you properly prepare?

Contact your CPA, Investment Advisor, Record keeper, …or us about how to be better prepared.