Attention Retirement Plan Sponsors: Big Changes Proposed!!!

by Christopher Crouthamel

Up until now, retirement plan sponsors with an annual audit requirement have understood that auditors, as part of the audit, are required to issue a letter addressing all material weaknesses, significant deficiencies and other compliance findings discovered during the audit. Under the current standards, only a select few individuals who are closely involved in the plan are privy to this internal control letter, which addresses weaknesses and deficiencies related to the plan sponsor’s oversight of the plan, plan processes and controls as well as other compliance issues noted. Thus, virtually the entirety of the plan’s participants, as well as the Company’s non-participating employees and service providers were never made aware of such findings and issues identified during the annual plan audit. Well, all of that is potentially about to change!

The AICPA Auditing Standards Board (ASB) issued a proposal on April 20, 2017 that would create a new auditing standard for auditor’s reporting on audits of the financial statements of employee benefit plans. The main impact on retirement plan sponsors with an annual audit requirement is that all of these material weaknesses, significant deficiencies and other compliance issues found during the audit will now be required to be included in the auditor’s report. Therefore, all of these findings will be out there for all to see as the auditor’s report is part of the audited financial statements, which are attached to the filed 5500. Anyone and everyone – plan participants, employees, competitors, the media, and the general public – will be able to obtain the Form 5500 and audited financial statements from the Department of Labor’s website so retirement plan sponsors’ “dirty laundry” will be on public display.

These proposed changes have not yet been approved as the respective exposure draft is still under review. If accepted, the proposed standards would be implemented effective December 15, 2018, therefore all such findings would be required to be included in the auditor’s report beginning with plan years ending December 31, 2018. A final decision on whether or not these proposed changes are approved is expected to be made later this year. In the meantime, this should provide extra incentive for plan sponsors to focus on improving their plan oversight and internal controls moving forward so that future findings can be minimized.

If you have any further questions regarding this exposure draft and its impact on retirement plan sponsors, please call Chris Crouthamel at 301-652-6700.