EMPLOYEE BENEFIT PLANS:

Empowering Employees and Your Organization While Remaining in Compliance

by Caleb Janysek, CPA – ADKF

EEmployee benefit plans (EBPs) are an integral part of a comprehensive compensation package provided by organizations to attract and retain talented employees. These plans contain a range of offerings, including health insurance and retirement plans. By providing these benefits, employers aim to enhance employee well-being, improve job satisfaction, and contribute to the organization's overall success.

One of the primary advantages of offering EBPs to employees is the ability to attract and retain skilled professionals. In a competitive job market, top talents seek employers who provide lucrative compensation packages, including benefits. A robust benefit plan package can act as a powerful recruitment tool, helping organizations stand out from their competitors and secure the best candidates. Further, once employees are onboarded, an elite benefit plan package plays a pivotal role in fostering loyalty and reducing turnover. Employees who feel supported in planning for their future are more likely to remain with an organization resulting in reduced recruitment and training costs.

For companies that provide EBPs for more than 100 individuals, the

Employee Retirement Security Act of 1974 (ERISA) requires an EBP audit from an independent party as part of the plan sponsor’s obligation to file a form 5500 with the Department of Labor (DOL). The Form 5500 is filed with the DOL and contains information about a plan’s financial condition, qualifications, and operation. The purpose of the form is to provide the IRS and

DOL with information about the plan’s compliance with government regulations. Per the American Institute of Certified Public Accountants (AICPA), the primary objective of a plan’s financial statements is to assess the plan’s present and future ability to pay benefits.

The financial reporting process for these plans may involve several different groups including the accounting department, human resources, a Third-Party Administrator (TPA), investment trustees and custodians, an actuary, and, of course, the independent auditor. Some of the tasks of a TPA include but are not limited to: amending and restating plan documents, preparing employer and employee benefit statements, assisting in processing all types of distributions from the plan, preparing loan paperwork for plan participants, testing the plan each year to gauge its compliance with all IRS non-discrimination requirements, and preparing the form 5500. It is particularly important, though, to note that the final responsibility for the financial reporting of the EBP lies with plan management, i.e., the management team of the employer who is sponsoring the benefit plan.

A financial statement audit helps protect the integrity of the EBP, allowing users to determine whether the necessary funds will be available to pay retirement, health, and other promised benefits to participants. The scope of these audits may vary, however, if the circumstances allow it. For example, Section 103(a)(3) (C), formerly known as limited scope, audit gives the plan administrator the option of not having investment information

(at the plan level only) tested during the audit. To permit a Section 103(a)(3)(C) audit, the investment information must be certified by the trustee or custodian as “complete and accurate”. Section 103(a) (3)(C) exception only applies to investments. However, in a non-Section 103(a)(3)(C), formerly known as full scope, audit, everything in the plan is subject to testing.

The independent auditor is responsible for obtaining reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. Absolute assurance is not attainable and even a meticulously planned and performed audit may not detect a material misstatement. Considering these facts, it is important to keep in mind when selecting an independent auditor whether they have a strong background in EBP audit engagements as well as know how much training they undergo each year regarding EBP engagements.

Employee benefit plans are essential components of a compensation package and are needed to attract top talent as well as maintain employee satisfaction and increase retention. Compliance requirements, including audits, ensure that benefit plans stay within the bounds of regulatory standards while promoting transparency and protecting the interests of participants and employers. These plans demonstrate an employer’s commitment to the overall welfare of their employees and can contribute to a positive work culture, increased loyalty, and improved organizational performance. BBM

Caleb Janysek joined the ADKF family in 2019 and is currently an Audit Manager. He is originally from Kenedy, Texas and earned a Master of Accountancy from Texas Lutheran University. Caleb is a Certified Public Accountant (CPA) and has been a practicing auditor since 2014.

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