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What is an ERISA audit and how does it affect my 401k plan?

Changes to employee benefit plan audits begin to take effect for audits of these plans for the year ended December 31, 2020.

Changes to employee benefit plan audits were recently adopted by the Auditing Standards Board and begin to take effect for audits of these plans for the year ended December 31, 2020. This means audits being performed during 2021 are going to be conducted differently.

When will these changes occur?

Although these changes will not begin until plan years that end after December 15, 2020, we recommend that plan administrators of large plans that use or are planning to use a Section 103(a)(3)(c) audit consider their new obligations under the American Institute of Certified Public Accountants (AICPA) Guidelines.

What is changing?

The new auditing standard, Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, was a collaborative effort between the AICPA and the DOL. Under the new standard, the “Limited Scope” audit that is current practice for most large plan filers is being replaced with what is now called an “ERISA Section 103(a)(3)(c)” audit.

Under current standards, plan assets are certified by a bank, custodian or other similar institution holding the plan’s assets. This certification attests to the completeness and accuracy of the financial records, which allows an auditor to not include these certified assets in the examination and issue a “disclaimer of opinion” on the plan’s audit report, which is permitted by ERISA Section 103(a)(3)(c).

The new standard enacts defined responsibilities for (1) the auditors and (2) management (Plan Sponsors).

  1. Auditors will now be required to focus on higher risk compliance issues, commonly referred to as prohibited transactions. A common example of a prohibited transaction is late employee contributions to the plan. In addition, auditors will now be required to issue an opinion stating that the information on the financial statements not covered by a certification is fairly presented and that the investment information contained in the financial statements reconciles or is derived from information contained in the certification prepared by the bank, custodian or service provider.

    As mentioned earlier, timely remittance of employee contributions continues to be a point of emphasis for the DOL. The official rule states “employee contributions should be remitted to the Plan on the earliest date on which such contributions can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month of deferral.”

    However, the DOL recently issued guidance for small plans (less than 100 participants) saying remittances beyond seven days are late. No guidance has been issued for large plans (greater than 100 participants), but the DOL considers the following factors in determining the timeliness of employee contributions:
    • the earliest date the employer actually made deposits
    • the timeframe for remitting payroll taxes by the employer
    • the consistency of when deposits are made
    For example, if an employer consistently deposits employee contributions and payroll taxes within three days of the payroll date, the DOL could conclude anything beyond three days is late.
  2. Management (Plan Sponsors) will now be required to provide written documentation – most likely contained in the engagement letter for the audit – that includes the following:

    • acknowledging responsibility for plan compliance;
    • maintaining a current plan instrument;
    • indicating that plan transactions (contributions, distributions) are presented in the plan financial statements in accordance with the plan document;
    • ensuring sufficient participant records are maintained and available for inspection; and
    • referencing that an ERISA Section 103(a)(3)(c) audit is permissible.
    In addition, management will now be required to take responsibility for any certifications provided by the bank, custodian or service provider of the plan. They will also be responsible for confirming that the certified information is accurately measured, presented and disclosed. Management will also be required to have substantially completed Form 5500 for review and to reconcile any inconsistencies with the plan’s financial statements prior to completing the audit.


If you have questions regarding SAS 136 and Section 103(a)(3)(c) audits, please contact Zac Spear using the information below.

Zac Spear

Vice President
Assurance Services
Manufacturing Industry Team Leader

Zac Spear has more than 10 years of public accounting experience. He leads the firm’s manufacturing industry team. Zac also manages the firm’s employee benefit plan audit practice; he has earned certification in employee benefit plan auditing from the American Institute of CPAs (AICPA).

Zac is a certified public accountant and a member of both the AICPA and the Kansas Society of CPAs (KSCPA). He was honored as one of the KSCPA’s “20 up to 40” young leaders program. Zac earned a bachelor’s degree in communications from the University of Kansas and a master’s of business administration from Baker University.

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