Employee Benefit Plan Resources
In this Edition
December 2, 2021

Reducing Time Lost in Audit Translation

CARES and SECURE Act Provisions: You Have Until December 31, 2022 to Make Plan Amendements

What is Your Fiduciary Duty as a Plan Sponsor?
Reducing Time Lost in Audit Translation
Without any help, the process of preparing for and going through an audit of a retirement plan can be time-consuming and painful. Between the volume of information needed and the technical terms used to describe the information, it may seem easier to understand Russian than go through the process of being audited.

In the case of a foreign language, a translator goes a long way in helping navigate the unfamiliar. For example, the Russian proverb “Doveryai, no proveryai” to non-Russian speakers looks like nonsense. However, with the help of a translator, the phrase can be clearly understood as “Trust, but verify”. Working with a good translator can take something that appears confusing and complicated, and turn it into something clear and concise.

When working with a plan sponsor, a good auditor can do the same. Often there is time spent translating between the information the auditor requests and finding the matching information in the plan sponsor’s records. In order to reduce the time spent lost in translation, below are some common areas that frequently need further explanation and the corresponding plain English explanation.

Employee Census

An employee census contains information about participants in the retirement plan and consists mainly of three items, which are listed below, and because all of these items change frequently, the census needs to be updated on an annual basis.

1. Personal information including:
  • Name
  • Date of birth
  • Social security number
  • Address
2. Employment information including:
  • Date of hire
  • Employee status (e.g. active, terminated, part-time, etc.)
  • Eligibility date
  • Current year compensation
3. Contribution information including:
  • Participant deferral amounts

When updating the census, ensure that the census data is reconciled with the corresponding payroll information for the plan year to avoid any unintentional errors and because the auditor will ask for proof of the reconciliation to verify that census information represents a full population of employees.

Plan Documents and Records

The items listed below direct the auditor as far as what participant-related transactions and activity will be looked at during the audit. An auditor will look at participant eligibility, payroll information, deferral percentages, demographic information, and other plan provisions based on the information included in these documents. Without these items, an audit should not be started.

Basic plan document: This document fully explains all of the possibilities that could be adopted by your plan within the range covered by the IRS determination letter. This includes essential information like elective deferral, eligibility requirements, employer contributions, profit sharing conditions, vesting, and more. 

Summary plan description: This document describes in detail all the features of the Plan. ERISA requires plan administrators to deliver the summary plan description to plan beneficiaries.

Summary annual report: This document summarizes the information on Form 5500 for the benefit of plan participants. It must include the total plan assets, administrative expenses incurred by the plan, and benefits paid to participants. ERISA requires plan administrators to deliver the summary annual report to plan participants each year. 

Adoption agreement: This document identifies the specific features of the plan. It spells out the plan’s rules around eligibility, contributions, enrollment features, and distribution features, among others. It is critical that these rules are followed in order to keep the plan compliant.

Plan amendments: As the laws around retirement plans change over the years, amendments to the adoption agreement may be needed to keep the plan up-to-date. It is the plan sponsor’s responsibility to document these changes. These plan amendments should reflect the most up-to-date features of the plan. 

IRS determination letter: This letter from the IRS to the plan sponsor states the retirement plan was a qualified plan at the time the IRS reviewed the information. This means the plan met the legal requirements and complied with the tax code. Generally, if a plan has received a favorable determination letter and subsequently follows the plan documents, the plan will retain its qualified status. 

ERISA fidelity bond: ERISA requires everyone who will be handling plan funds to be insured (bonded). These bonds act as a safeguard and cover the retirement plan against losses due to dishonest or fraudulent activity. Generally, the maximum bond required is 10% of plan assets up to $500,000. A record of the current bond should be kept with the other plan documents.

Fee disclosures: ERISA requires that plan sponsors must disclose the plan’s administrative, individual, or investment-related expenses and fees to the participants of the plan.

Trust and Recordkeeping Reports

These reports will be provided by the plan’s third-party administrator (TPA), and summarize the activity that took place during the year. The reports provide information on activity that took place at the overall plan level as well as detail the activity that took place in each individual participant’s account. In many cases, the TPA will certify that the information contained in trust report is complete and accurate. This certification allows the auditor to reduce the procedures done in relation to the investments held by the plan. Audits performed with a certification in place are known as ERISA section 103(a)(3)(c) audits. 

It should be noted that the plan administrator is responsible for determining that the investment certification is both complete and accurate and signed by an authorized person. As part of the audit procedures, the auditor will ask if the plan administrator has made this determination. 


Remember that having an auditor working with you to help translate the information needed to complete the audit into approachable information will make the entire audit process move along quickly and efficiently.

Charlie Wendlandt, CPA
D 715.384.1986
CARES and SECURE Act Provisions: You Have Until December 31, 2022 to Make Plan Amendements
With the circumstances that resulted from the global COVID-19 pandemic, there is no shortage of change. Between tax laws, health and safety guidelines, and short staffing, it is no surprise that the last thing on your mind could be your employer-sponsored retirement plan. Hawkins Ash CPAs audited nearly 100 employee benefit plans in 2021 and throughout the majority of the plan audits, we observed a substantial growth in plan assets, some even doubling in size. Throughout 2020 and 2021, retirement plans nationwide have seen the largest increase in participation and contributions in history. With this, maximizing the employee’s benefit and minimizing the employer’s cost comes with all new importance. The good news with all these changes is that you have time!

Though your plan may not yet be amended to include the provisions of the CARES and/or SECURE Act(s), the plan administrator, at their discretion, can permit the use of those provisions at any point. These provisions include many benefits, like increased loan limitations (up to $100,000), waived required minimum distributions (RMD’s) for 2020 and making long-term, part-time employees eligible to participate in retirement plans. The plan sponsor has the option to adopt the CARES and/or SECURE Act(s) until December 31, 2022, and may apply the amendment(s) retroactively. Though you may have time, do not wait to reach out to your third-party administrator or your Hawkins Ash representative to help answer any questions you may have and to determine the best course of action for your plan.

Hunter Drake
D 507.453.5975
What is Your Fiduciary Duty as a Plan Sponsor?
As a plan sponsor you have a fiduciary duty to the participants in your plan. These responsibilities are outlined in the Employee Retirement Income Security Act of 1974 (ERISA). In general, as a fiduciary you are responsible for ensuring the plan’s investments are optimized in the best interest of the participants; i.e. diversified, free of poor performing funds, and with reasonable fees. However, some plan sponsors fail to recognize this duty. 

According to a recent survey by JP Morgan, 25 percent of plan sponsors believed they retained no fiduciary responsibility for selecting and reviewing investment options, and an additional six percent were unsure if they did. Unfortunately, failing to fulfill your duty as a fiduciary comes with significant risk. Since 2009, approximately 83,000 ERISA lawsuits have been filed, commonly for things like high fees or poor fund performance. Furthermore, if you are found to have breached your fiduciary duty, you can be held personally liable. 

Additionally, the standard that you as a fiduciary are held to is called the Prudent Expert Standard, meaning that unless you have expertise at the plan sponsor level, you are required to consult with an expert. 

There is good news however. That same survey from JP Morgan also found that 80 percent of plan sponsors who recognize that they are fiduciaries are either extremely or very confident they are meeting their obligations.  

So What Exactly Are the Fiduciary Roles?

Section 3 of ERISA defines three types of fiduciaries pertaining to benefit plans. Paragraph 16 defines the plan “administrator”, who is typically responsible for things like reporting, filing the Form 5500, participant disclosures, and summary plan descriptions. You’ve likely already outsourced these duties to your third-party administrator (TPA). 

Paragraphs 21 and 38 define two other types of fiduciaries, pertaining to investments. Paragraph 3(21) defines as a fiduciary anyone who (1) exercises any discretionary authority or control regarding the management of an employee benefit plan or the disposition of its assets, (2) renders investment advice in exchange for compensation with respect to any assets of the plan, and (3) exercises any discretionary authority or control over the administration of the plan. This definition applies to the plan administrator, the plan trustee, and any investment advisor the plan may use. 

Paragraph 3(38) defines the term “investment manager” as anyone who (1) has the power to manage, acquire, or dispose of any asset of a plan, (2) is a registered investment advisor, bank, or insurance company qualified to provide these services, and (3) has acknowledged in writing that they are a fiduciary with respect to the plan. 

So What Does That Mean?

Basically, you as a plan sponsor are responsible for managing the investments of the plan, but there are two specific ways you can outsource these duties to ensure you meet the Prudent Expert Standard and limit your risk as a fiduciary. You can hire an investment advisor, or co-fiduciary, under paragraph 3(21), or you can hire an investment manager under paragraph 3(38). 

What is the difference?

There are a few key differences between the 3(21) and 3(38) fiduciaries. The first is their ability to act. A 3(21) co-fiduciary can make recommendations, but can’t change the investment lineup or dispose of plan assets. It’s up to the plan sponsor to act on their recommendations. In contrast, a 3(38) fiduciary will decide what the investment options will be, monitor performance, and make changes accordingly. Essentially, they take over completely the investment management of the plan. 

Handcuffed to this is the difference in risk you retain with each of these scenarios. With a 3(21) co-fiduciary, you remain liable for the performance of the funds and the fees they charge. You also must ensure that you are not blindly following the recommendations of your advisor. You must evaluate their recommendations, monitor fund performance, and ensure you document these evaluations. 

Hiring a 3(38) fiduciary, however, shifts nearly all this risk (and work) to them. They are solely responsible for any liability arising from poor fund performance, lack of diversification, and fees charged to participants. This doesn’t get you completely off the hook however. You are still responsible for the due diligence in selecting and monitoring this advisor, which you should be sure to document. They will also need to acknowledge that they are a fiduciary of the plan in writing. 

Is an Investment Advisor Right for Your Plan?

We know that plan sponsors are generally not in the business of administering benefit plans or evaluating investment options. Outsourcing these responsibilities is a great way to increase compliance and reduce costs. However, it is key to the successful operation of an employee benefit plan to understand your role as a fiduciary, and the roles of those you hire; as well as how much control you are giving up, and how much potential liability you retain. 

Bradley Knowles, CPA
D 608.793.3080
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