Applying DOL, ERISA, and Form 5500 Requirements in Employee Benefit Plan Audits

Employee benefit plan audits sit at the intersection of GAAS, ERISA, Department of Labor oversight, plan documents, and Form 5500 reporting. The audit is not just a financial statement exercise. It protects participants by testing whether plan assets, contributions, distributions, investments, and required schedules are presented properly and supported by plan records.

For AUD, the most important distinction is that management and plan administrators retain fiduciary responsibility. The auditor reports on the plan financial statements and required supplemental schedules, but management is responsible for the plan, the Form 5500, the financial statements, and any election to use ERISA Section 103(a)(3)(C).

    flowchart TD
	    A["Plan subject to ERISA"] --> B{"Large plan audit required?"}
	    B -- "No or exempt" --> C["Form 5500 filing may still apply, but audit may not be required"]
	    B -- "Yes" --> D["Plan administrator prepares financial statements and supplemental schedules"]
	    D --> E{"ERISA Section 103(a)(3)(C) election?"}
	    E -- "No" --> F["Audit all material plan information under normal EBP audit approach"]
	    E -- "Yes" --> G["Evaluate qualified institution certification and audit noncertified information"]
	    F --> H["Auditor report attached to Form 5500"]
	    G --> H

Form 5500 and Audit Requirement

Form 5500 is the annual return/report used by employee benefit plans to report financial, operational, and compliance information to federal agencies and provide public disclosure. Plans generally file electronically through the DOL’s EFAST2 system.

The participant count rule is an exam cue, not a substitute for reading the Form 5500 instructions in practice. For AUD, know that large plans commonly need an audit and small plans may qualify for an exemption.

ERISA Fiduciary Duties

ERISA imposes fiduciary duties on people who exercise authority or control over plan management, plan assets, administration, or investment decisions. Fiduciaries must act for participants and beneficiaries, not for the sponsor’s convenience.

The auditor does not become the plan fiduciary. The auditor evaluates evidence, reports under professional standards, and communicates reportable findings when required.

Contributions and Participant Protection

Employee deferrals are plan assets once they can reasonably be segregated from the employer’s general assets. Late deposits can create prohibited transactions and lost earnings owed to participants.

A sponsor’s payroll process often drives EBP risk. If payroll records, HR eligibility files, and plan recordkeeper data do not reconcile, participant accounts and financial statements may be misstated.

ERISA Section 103(a)(3)(C) Election

What used to be called a limited-scope audit is now commonly described under the current auditing standard as an ERISA Section 103(a)(3)(C) audit. The plan administrator may elect this approach when a qualified institution certifies certain investment information as complete and accurate.

Do not answer old-style questions by saying the auditor performs no work. The election affects certified investment information; it does not remove the audit of the plan’s other material financial statement areas.

Auditor Responsibilities

The auditor’s responsibilities in an EBP audit include more than agreeing a few investment statements. The auditor must understand the plan, relevant plan provisions, the reporting framework, and the election made by management.

The plan document is a primary audit source. If operations differ from the document, the auditor evaluates whether the financial statements, disclosures, compliance reporting, or required communications are affected.

Exam Traps

• ERISA Section 103(a)(3)(C) audits are not simply “no audit of investments” and are not the same as the pre-SAS 136 limited-scope disclaimer model.
• The plan administrator, not the auditor, is responsible for Form 5500 and the election to use Section 103(a)(3)(C).
• Certified investment information does not eliminate audit work on contributions, participant data, distributions, or expenses.
• Late employee deferrals can be prohibited transactions and may require correction for lost earnings.
• The auditor should read the plan document; plan operations are tested against plan terms.
• A small plan exemption from audit does not mean ERISA has no filing or fiduciary requirements.

Quick Review

Use this sequence for DOL and ERISA questions:

1. Identify whether the plan is subject to ERISA and whether a large plan audit is required.
2. Separate Form 5500 filing responsibility from auditor reporting responsibility.
3. Read the plan document as the operating rulebook.
4. Test contributions, participant data, distributions, investments, and expenses based on risk.
5. If Section 103(a)(3)(C) is elected, evaluate the certification and keep auditing noncertified information.
6. Communicate reportable findings and report on required supplemental schedules.

Review Questions