Understanding Employee Benefit Plan Audits: How HHM Helps Their Clients Navigate This Niche

By Caroline Christman, Southside Creative

Chances are, Employee Benefit Plan Audits aren’t something you think about on a daily basis. But they are crucial to the long-term success of a company and the satisfaction of employees. So, whether you’re running a business or working your way up the ladder, there are some important things to know about these audits.

Having served businesses across the U.S. for over 30 years, HHM has become one of the largest Employee Benefit Plan Audit firms in the greater Chattanooga area. HHM combines comprehensive audit, tax and advisory services that can be tailored to the unique needs of Employee Benefit Plan sponsor clients. 

Employee Benefit Plan Audits are required by the rules of The Employee Retirement Income Security Act of 1974 (ERISA) that established minimum standards for pension plans in private industry to provide protection for individuals in these plans. Because of this act, Employee Benefit Plans with 100 or more participants at the beginning of each year are required by federal law to undergo an audit as part of their obligation to file an annual return (Form 5500). If previously filed as a small plan, the threshold to audit an employee benefit plan increases to 121 eligible participants.

“Even though these are deemed to be financial audits, they are far more complicated because it requires compliance of the sponsor’s plan document and the rules of ERISA,” says Randy Dummer, HHM partner. “These are higher risk due to continuously changing federal regulations governing retirement plan compliance, and are tested on a sample basis for deficiencies. It is highly suggested to trust a firm who conducts extensive, regularly scheduled compliance training to bring the most recent developments and strategies to its numerous sponsor clients.”

The most recent study on 2011 plan year audits, released in 2014, reported that in the Department of Labor’s opinion 39 percent of the 400 audits reviewed were deficient in at least one way. Firms that don’t do many of these audits tend to have high instances of these deficiencies. In fact, the same study reported that CPAs that conducted one to two per year had a 76 percent deficiency rate.

If a plan administrator hires a CPA who performs only one to two plan audits, there is a greater chance of hiring someone whose audit contains deficiencies.

“HHM conducts approximately 50 of these audits per year for sponsor clients in a variety of industries,” Dummer says. “We have a well trained staff of skilled professionals and a nationally trained expert that leads the department. HHM often goes a step further and does more than just the audit — we can also analyze the plan and help management discover how it can work best for employees and make them retirement ready.”

Generally, sponsor clients identify an individual to coordinate the plan’s audit. The designated person has overall fiduciary duty and is responsible for providing the firm handling the audit with all appropriate materials such as plan documents, financial records and other various items specific to the sponsor.

Errors, omissions and timing mistakes made in your annual Employee Benefit Plan Audit can result in significant penalties. HHM sees errors typically in the following areas: proper determination of eligible compensation, employer match issues, employee eligibility to enroll in the sponsor’s plan and timely remittance of employee deferrals.

Deferrals should be contributed to the plan as soon as the funds can be segregated from general company assets. In no instance shall funds be submitted any later than the 15th business day of the month following the month in which the funds were withheld. In today’s environment it should be within five business days. 


HHM has specialized knowledge on the regulatory requirements under ERISA, the IRS and the Employee Benefits Security Administration of the Department of Labor and can help ensure that your plan meets the reporting requirements. For more information, call HHM to schedule an appointment at 423.756.7771 or contact Randy Dummer directly at rdummer@hhmcpas.com.