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5 Things People Get Wrong About ERISA Fidelity Bonds

By Nevin Adams

Here are five things you (or your client) may not know about ERISA fidelity bonding — and that, as a result, they may be getting wrong.

One of the most important — and, in my experience, least understood — aspects of plan administration is the requirement that those who handle plan funds and other property be covered by a fidelity bond.

While ERISA requires the bond to protect the plan from losses resulting from acts of fraud or dishonesty, fiduciaries often confuse that coverage with insurance that is designed to protect them from liability.

Here are five things you (or your client) may not know about ERISA fidelity bonding — and that, as a result, they may be getting wrong.

An ERISA fidelity bond is not the same thing as fiduciary liability insurance.

The fidelity bond required under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, insures fiduciaries, and in some cases the plan, against losses caused by breaches of fiduciary responsibilities.

Although many plan fiduciaries may be covered by fiduciary liability insurance, it is not required and does not satisfy the fidelity bonding required by ERISA.

You can’t get an ERISA bond from just anybody.

For a list of approved sureties see the DOL’s Department Circular 570. Under certain conditions, bonds may also be obtained from underwriters at Lloyds of London. Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.

Not every fiduciary needs to be bonded.

Most fiduciaries have roles and responsibilities that involve handling plan funds or other property, and generally will need to be covered by a fidelity bond (unless they satisfy one of the exemptions in ERISA or the DOL’s regulations.

However, technically an ERISA fidelity bond would not be required for a fiduciary who does not handle funds or other property of an employee benefit plan.

The plan can pay for the bond out of plan assets.

The purpose of ERISA’s bonding requirements is to protect the plan, and those bonds do not protect the person handling plan funds or other property or relieve them from their obligations to the plan, so the plan’s purchase of the bond is allowed.

You can purchase a fidelity bond for more than the legally required amount.

However, note that whether a plan should spend plan assets to purchase a bond in an amount greater than that required by ERISA is a fiduciary decision.




Protect Your Employee Benefit Plan With An ERISA Fidelity Bond

The Employee Retirement Income Security Act (ERISA) sets rules and standards of conduct for private sector employee benefit plans and those that invest and manage their assets. The provisions of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds of private pension and other employee benefit plans were being mismanaged and abused. One of ERISA’s requirements is that people who handle plan funds and other property must be covered by a fidelity bond to protect the plan from losses due to fraud or dishonesty.

This publication highlights key elements that employers and other plan sponsors should know about ERISA’s fidelity bonding requirements. These questions and answers provide general information to help you understand the law and the fidelity bonding requirements. It is not a legal interpretation and does not address all of the issues related to ERISA’s fidelity bonding requirement.

What is an ERISA Fidelity Bond?

An ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts. Deductibles or other similar features are prohibited for coverage of losses within the maximum amount for which the person causing the loss is required to be bonded. In addition, it is important to make sure that the plan is named (or otherwise specifically identified) as an insured party on the bond so that the plan can recover losses covered by the bond.

Is an ERISA Fidelity Bond the same thing as fiduciary liability insurance?

No. The fidelity bond required under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, insures fiduciaries, and in some cases the plan, against losses caused by breaches of fiduciary responsibilities. Although many plan fiduciaries may be covered by fiduciary liability insurance, it is not required and does not satisfy the fidelity bonding required by ERISA.

Can I get an ERISA bond from any bonding or insurance company?

 No. Bonds must be obtained from a surety or reinsurer that is named on the Department of the Treasury’s Listing of Approved Sureties, Department Circular 570 (available at Under certain conditions, bonds may also be obtained from Underwriters at Lloyds of London. Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.

Who must be bonded?

Every person who “handles funds or other property” of an employee benefit plan is required to be bonded unless covered under an exemption under ERISA. ERISA makes it an unlawful act for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” without being properly bonded.

Fidelity bonding is usually necessary for the plan administrator and those officers and employees of the plan or plan sponsor (employer, joint board, or employee organization) who handle plan funds by virtue of their duties relating to the receipt, safekeeping and disbursement of funds. The bonding requirement is not limited to just plan trustees, employees of the plan and employees of the plan sponsor. Bonding coverage may also be required for other persons, such as service providers to the plan, whose duties involve access to plan funds or decision-making authority that can give rise to a risk of loss through fraud or dishonesty. Where a plan administrator, service provider, or other person who must be bonded is an entity, such as a corporation or association, ERISA’s bonding requirements apply to the natural persons or person who “handles” the funds.

The term “funds or other property” generally refers to all funds or property that the plan uses or may use to pay benefits to plan participants or beneficiaries. Plan “funds or other property” includes all plan investments including land and buildings, mortgages, and securities in closely-held corporations. It also includes contributions from any source, such as employers, employees, and employee organizations that are received by the plan, and cash, checks and other property held for the purpose of making distributions to plan participants or beneficiaries.

A person is deemed to be “handling” funds or other property of a plan whenever his or her duties or activities could cause a loss of plan funds or property due to fraud or dishonesty, whether acting alone or in collusion with others. The general criteria for determining “handling” include:

  • Physical contact with cash, checks or similar property;
  • Power to transfer funds from the plan to oneself or to a third party;
  • Power to negotiate plan property (e.g., mortgages, title to land and buildings or securities);
  • Disbursement authority or authority to direct disbursement;
  • Authority to sign checks or other negotiable instruments; or
  • Supervisory or decision-making responsibility over activities that require bonding.

Who are the parties to an ERISA Fidelity Bond?

In a typical bond, the plan is the named insured and a surety company (insurer) is the party that provides the bond. The persons covered by the bond are the persons who handle funds or other property of the plan. As the insured party, the plan can make a claim on the bond if a plan official causes a covered loss to the plan due to fraud or dishonesty.

Do ERISA’s bonding requirements apply to all employee benefit plans?

No. Although the bonding requirements generally apply to most ERISA retirement plans and many funded welfare benefit plans, the ERISA bonding requirements do not apply to employee benefit plans that are completely unfunded (i.e., the benefits are paid directly out of an employer’s or union’s general assets), or to plans that are not subject to Title I of ERISA (for example, church plans, governmental plans.)

Are there any other exemptions from ERISA’s bonding requirements?

Yes. The law and the Department’s regulations provide exemptions for some regulated financial institutions, including certain banks, insurance companies, and registered brokers and dealers. If the financial institution meets the conditions in the exemption, the institution and its employees do not need to be covered by an ERISA fidelity bond even if their activities include handling your plan’s funds or property.

Must all fiduciaries be bonded?

No. Most fiduciaries have roles and responsibilities that involve handling plan funds or other property, and generally will need to be covered by a fidelity bond, unless they satisfy one of the exemptions in ERISA or the Department’s regulations. However, an ERISA fidelity bond would not be required for a fiduciary who does not handle funds or other property of an employee benefit plan.

Must service providers to the plan be bonded?

It depends. A service provider, such as a third-party administrator or investment advisor, must be bonded if the service provider or its employees handle funds or other property of your employee benefit plan.

How much coverage must the bond provide?

Generally, each person must be bonded in an amount equal to at least 10% of the amount of funds he or she handled in the preceding year. The bond amount cannot, however, be less than $1,000, and the Department cannot require a plan official to be bonded for more than $500,000, or $1,000,000 for plans that hold employer securities. These amounts apply for each plan named on a bond.

For example, assume your company’s plan has funds totaling $1,000,000. The plan trustee, named fiduciary and administrator are three different company employees that each have access to the full $1 million, and each has the power to transfer plan funds, approve distributions, and sign checks. Under ERISA, each person must be bonded for at least 10% of the $1 million or $100,000.

(Note: Bonds covering more than one plan may be required to be over $500,000 to meet the ERISA requirement because persons covered by a bond may handle funds or other property for more than one plan.)

If the plan purchases a bond to meet ERISA’s requirements, may the plan pay for the bond out of plan assets?

Yes. The plan can pay for the bond using the plan’s assets. The purpose of ERISA’s bonding requirements is to protect the plan. Such bonds do not protect the person handling plan funds or other property or relieve them from their obligations to the plan, so the plan’s purchase of the bond is allowed.

Can a plan purchase a bond for a larger amount?

Yes. The plan can purchase a bond for a higher amount in appropriate cases. Whether a plan should spend plan assets to purchase a bond in an amount greater than that required by ERISA is a fiduciary decision.

Who is responsible for making sure that the plan has proper bonded coverage?

The responsibility for ensuring that the plan has proper bonding coverage may fall upon a number of individuals simultaneously. All persons who handle plan funds or other property are responsible for complying with the bonding requirements themselves. In addition, any other person who has authority to authorize another person to perform handling functions is also responsible for ensuring that those persons are properly bonded. For example, if a fiduciary hires a trustee for a plan, the fiduciary must ensure that the trustee is properly bonded or covered by an exemption.

If a service provider is required to be bonded, must the plan purchase the bond?

No. A service provider can purchase its own separate bond insuring the plan. The plan may agree with the service provider that the service provider will pay for the bond. Plan fiduciaries can also decide to add a service provider to the plan’s existing fidelity bond.

For a more detailed discussion of ERISA’s fidelity bonding requirements, visit the Employee Benefits Security Administration’s Website at to view the Department’s Field Assistance Bulletin 2008-04.


9 Myths about Section 125 Plans

The structure and operation of Section 125 plans — which allow employers to offer certain benefits on a pre-tax basis — is one of the hardest things for employers to master.

So, I thought it might be helpful to explore the top nine misconceptions about Section 125 benefits.

1. Employers do not need a Section 125 plan document in place in order for employees to pay for qualified benefits (for example, health, dental, vision premiums) pretax.

Truth: A written plan document is mandatory and should be amended or restated from time to time, to remain current.

2. Most group health insurers and health plan third-party administrators are experts on Section 125 plan rules and regulations.

Truth: Most are relatively unfamiliar with Section 125, and do not keep track of which employer clients are operating under a Section 125 plan and which are not. For example, most do not keep a copy of the employer’s Section 125 plan document on file.

3. Everyone who is eligible under the health plan may participate in the Section 125 plan.

Truth: Only employees are eligible to participate in the Section 125 plan. Certain individuals, such as partners in a partnership and over 2% shareholders in an S-corporation, are ineligible to participate. While spouses and dependents cannot participate, they can receive tax-favored benefits as beneficiaries. Meanwhile, nontax dependents, such as certain domestic partners, cannot. Check with your tax adviser. Double-check the eligibility section in your document.

4. If a certain midyear election change is not permissible under the Section 125 plan document but is allowed by a component plan (for example, the health plan), it’s OK to allow the change.

Truth: The terms of the Section 125 plan document must be followed. The salary reduction election must remain in place unless the Section 125 plan permits the change. Similarly, the health insurer or administrator is not bound by eligibility terms in the Section 125 plan that differ from those in the health plan documents. If hours and waiting-period requirements, for example, are included in your Section 125 plan document, double-check that those terms are in sync with your health plan documents.

5. Section 125 plan documents must include all permissible status changes (aka, qualifying events), as defined by the United States Treasury.

Truth: Employers are not required to include all permissible events in the plan document. Now is a good time to double-check if your plan excludes any of these and if there continues to be a solid rationale for doing so. For example, two new status changes that many employers have not adopted are related to Affordable Care Act marketplace enrollment opportunities.

6. Employee pretax health savings account contributions don’t flow through a Section 125 plan, and shouldn’t be listed as an available benefit in the Section 125 plan document.

Truth: The only way to allow pretax contributions to an HSA is through a Section 125 plan. Consult with your benefits adviser and double-check that pretax HSA contributions are allowed in your Section 125 plan.

7. Health reimbursement arrangement dollars may flow through a Section 125 plan.

Truth: HRA contributions may only be made by employers and are not a permissible benefit under Section 125. This rule, for example, doesn’t permit HRA dollars to be available to employees within a traditional cafeteria plan offering.

8. It’s a good idea to allow employees to pay for supplemental medical products (e.g., accident, cancer, hospital indemnity) pretax through a Section 125 plan.

Truth: This allowance can quickly open up a compliance Pandora’s box for employers and should generally be avoided. Check with your tax adviser and attorney. Resist the temptation to take guidance on this matter from the vendor selling these products.

9. Fully insured health plans are exempt from Section 125 nondiscrimination testing.

Truth: Section 125 nondiscrimination testing (not to be confused with the delayed ACA nondiscrimination rules) applies even if the plan is insured. It also applies if the plan is self-funded.


California Secure Choice, Modified, Heads for Governor’s Signature

The Golden State has modified the legislation regarding its state-run auto-IRA program for private sector workers in place, readying the measure for Gov. Jerry Brown’s expected signature.

In the wake of the Trump administration’s removal of the Obama administration’s ERISA safe harbor guidance for state-run auto IRAs, California State Treasurer John Chiang and Senate President Pro Tempore Kevin de León (D-Los Angeles) said that California’s Secure Choice program remains on track, citing a legal opinion from the law firm of K&L Gates. That opinion noted assumptions that the law implementing the program would “be amended to remove references to the 2016 Safe Harbor.” That has now taken place, along with other modifications to AB-119. The bill passed the California Senate 27-10
and the Assembly 54-23 on June 15 as part of the state budget package. Gov. Brown, who is expected to sign the bill, has until July 1 to do so.

Is ‘Auto’ Voluntary?
One of the primary concerns about the ability of these state-run automatic IRA programs to steer clear of ERISA had been concerns that a payroll withholding program which nudges employees into savings through automatic enrollment elections would not satisfy the “completely voluntary” condition of the Labor Department’s 1975 safe harbor. The May 16 letter reminds that “both the preambles to the proposed and final 2016 Safe Harbor explained the DOL’s view that a program’s auto-enrollment/escalation feature
could cause an employer to exercise undue influence over an employee’s participation and that contributions made without an affirmative election might not be completely voluntary.” However, they opined that if the employer was establishing the program not at their own doing, but as the result of a state law requiring the action, “the element of ‘employer volition’ would be absent, with the result that any employee participation in the program should be viewed as ‘[completely] voluntary.’”

Would that survive legal challenge? Well, the K&L opinion acknowledged that “the final authority to determine whether the Program as it is ultimately designed is not an ERISA employee benefit plan rests with the courts and it is possible that a court could take a different view than expressed in the 1975 Safe Harbor (as defined below) or in my analysis.”  We shall see.

Program Provisions
The program has been described by proponents as “the most ambitious push to expand retirement security since the passage of Social Security in the 1930s.” Once Secure Choice is fully operational, employers with five or more employees which don’t already provide a retirement plan will be required to either begin to offer a retirement plan or provide their employees access to Secure Choice; employers with more than 100 employees will need to offer a retirement plan within 12 months after the program is open for enrollment; employers with more than 50 employees will need to offer a retirement plan within 24 months after the program is open for enrollment; and employers with more than five employees will need to offer a retirement plan within 36 months after Secure Choice is open for enrollment.

The California Secure Choice website notes that the mandate will not go into effect for at least two years, and that 2019 is likely to be the earliest that large employers which do not offer a retirement plan to their employees will be required to provide access to Secure Choice. The mandate will be phased in over a three-year period, the website notes, specifying that “[a]ny information to the contrary is wrong,” and directing anyone who is told something different to report the issue “…so we can correct the vendor.”

Source: NAPA Net

401(k) Borrowing isn’t Free

When dire financial need strikes, employees often tap their retirement accounts. While there are cases in which a 401(k) withdrawal makes sense, these loans should be viewed as an absolute last resort.

There are significant downsides related to 401(k) loans such as including penalties, administration and maintenance fees as well as “leakage” from retirement accounts. This occurs when an employee takes a loan on their 401(k), cashes out entirely or leaves their job and rolls over their account to their new employer.

Borrowing from retirement plans presents hazards to the employer, as well. More employers are minimizing the ability of employees to dip into their 401(k) savings by limiting the number of loans from 66% in 2012 to 45% in 2016, according to SHRM. Despite this, the bottom line is that employees need access to low cost credit.

More than 1-in-4 participants use their 401(k) savings for non-retirement needs, according to financial education provider HelloWallet. That amounts to a startling $70 billion of retirement savings that employees are siphoning away from their future.

There are hidden costs to 401(k) loans. One of the perceived benefits of a 401(k) loan is that the borrower isn’t charged any interest. That’s a fallacy: 401(k) loans typically include interest rates that are 1 to 2 points higher than the current Prime Rate plus administrative fees. While the borrower pays this money to him or herself rather than to a bank, these “repayments” don’t take into account penalty of taking money out of a 401(k) for months or years when it might have enjoyed market gains.

The downside of the interest rate is that it makes paying back the loan more difficult and this will likely lead to 401(k) leakage. In some cases, loopholes that allow employees to raid their 401(k)s before retirement reduce the aggregate wealth in those accounts by 25%. Simply put, this translates into having the most senior and highest paid employees stay on the job because they do not have enough funds in their account to retire. From an HR administrator’s standpoint, that can increase overall costs, since employees who cannot afford to retire are drawing higher-than-average salaries. And thanks to their advanced age, they also run-up costs on the employer’s medical plan.

The financial wellness alternative

Employers should offer socially responsible alternatives to borrowing from their 401k. Not only to ensure that older workers can afford to retire and make room for younger, less-expensive hires, but to ease the financial burden for employees when emergencies do happen. This should be offered as a voluntary benefit with no risk to employers. In a recent Wall Street Journal article, “The Rising Retirement Perils of 401(k) ‘Leakage’” Redner’s Markets made that leap offering a low-cost Kashable loan to its employees. It stopped leakage and offered employees of the online grocer much needed relief from financial stress.

Adding a financial wellness solution to the employee voluntary benefits package that provides access to responsible credit is a first step in untangling employees’ financials. For employees struggling with college loans and credit card debt, this financial-wellness benefit allows them to borrow when needed at a low rate. For the 35% of employees surveyed by PWC in 2016 that said they had trouble meeting their monthly household expenses and the 29% that said they had trouble meeting their minimum credit card charges each month, this voluntary program provides multiple benefits. For the employee, it is an opportunity to build or improve their credit score, and provide relief from financial stress. To the employer, it’s a risk-free solution to stop the leakage from retirement accounts.


Retirees Don’t Have to be Broke

Bloomberg View

Of the many proposed legislative changes that might occur during the presidency of Donald Trump, the one with the highest probability of actually becoming law is a reduction in corporate tax rates. While we are considering making changes to the tax laws, I have a modest, related proposal that won’t cost very much and has enormous
potential benefits: Raising the ceiling on contributions to individual retirement accounts, 401(k)s and other tax‐deferred retirement‐savings accounts. At a minimum the IRA contribution ceiling should be tripled to $15,000 a year, and indexed to inflation, and the 401﴾k﴿ limit should be doubled to $36,000 a year.

Let’s begin with the basic facts: For this year, IRAs top out at $5,500 a person ﴾$6,500 if you are 50 or older﴿; 401﴾k﴿s max out at $18,000 ﴾$24,000 if you’re 50‐plus﴿.
Those numbers are, to be blunt, absurd. Without any changes, the U.S. will face a retirement crisis in the next 20 years or so. Raising the limits would be the first of several steps the U.S. should take to avoid that fate. ﴾Fixing Social Security and Medicare are subjects for another column.﴿

Consider a saver who puts away the maximum of $5,500 for 30 years, generating a 6
percent return and ending up with $460,909. That’s not bad, but it falls short in several
ways. Part of the problem has to do with the 1974 law that allowed creation of IRAs.
Taxpayers were allowed to set aside as much as 15 percent of their annual income or
$1,500, whichever is less. Simply adjusting for inflation since then, that $1,500 in 1974
should be $7,343 today. In other words, in current dollars the maximum contribution is
almost $2,000 short of the original limit.

But raising the IRA ceiling almost 50 percent is only the start. That $460,909 in 2047 is actually only equal to $189,888 in today’s dollars, assuming a 3 percent average inflation rate during the next 30 years. ﴾It’s worth even less if inflation turns out to be higher.﴿ Furthermore, the average IRA account balance in 2014 was slightly more than $100,000 and the average IRA individual balance was $127,583. This is vastly less than what is needed.

Things are better for 401﴾k﴿ savers, but far from great: Put $18,000 away for 30 years, let it compound at a 6 percent rate and you end up with $1,508,430. That sounds like enough
money to retire on today – but we are talking about 2047. The present value of that savings account in 2017 dollars ﴾again, assuming a 3 percent inflation rate﴿ would be $617,980. That’s probably still not enough.

A few caveats: The IRA and 401﴾k﴿ ceilings are scheduled to rise a bit over time. My
calculations don’t reflect further increases. However, as we have seen since the 1970s, these ceiling increases fail to keep up with inflation. Thus, people in their 60s today who have been stashing money away in 401﴾k﴿s for many years only have an average balance of $304,000, according to the Employee Benefit Research Institute and Investment Company Institute.

Why does this pose such a huge problem? There are several issues that the rules failed to
take into account when Congress drafted the retirement legislation in the early 1970s. The first is the increasing longevity of Americans. It’s no longer uncommon for a person to live for 20 or 30 years in retirement.

The second issue is how the consumer price index measures inflation. It has been said that the prices of the things we want are going down while the prices of the things we need are going up. The elderly tend not to be big buyers of technology, gadgets, durable goods, autos and so on. These have all fallen in price over the years, and that is reflected in part in today’s low CPI rate. On the other side of the pricing ledger, health care, housing, food and energy – the things we can’t do without and which the elderly have to consume – have all seen significant price increases. Thus, the inflation rate for those in retirement is somewhat higher than is reflected in the CPI data.

Troubling as things may be for those approaching the end of their working lives is how
difficult saving for retirement might be for young people. Indeed, millennials may need to double how much they sock away, partly because investment returns have been so low. The present contribution limits all but guarantee insufficient savings for the average
American’s golden years. In the face of the looming retirement crisis, this is an issue that
should be resolved sooner rather than later. Let’s hope that Trump and Congress take the
necessary action.


DOL Outlines Benefit Plan Audit Deficiencies

Too many employee benefit plan audits are deficient, finds a new report from the U.S. Department of Labor, putting up to $653 billion and 22.5 million plan participants and beneficiaries at risk.

More than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefit plans. The Employee Benefit Security Administration’s review found that while 61% of audits fully complied with professional auditing standards or had only minor
deficiencies under professional standards, the remaining 39% of the audits contained major deficiencies.

I can’t say I’m surprised, says Danielle Capilla, chief compliance officer with United Benefit Advisors. DOL audits deal with a complicated area of law where there’s a lot of nuance. So it’s very easy for someone to make a mistake that is then compounded over the years.

Moreover, she says, the Affordable Care Act further complicated the waters as it relates to the law surrounding benefit plans.  It gives plans more areas to make mistakes. It’s kind of low-hanging fruit [for the DOL] to a certain extent.

Documentation errors are one of the most common issues face during a DOL audit, says Capilla. So much documentation is required, some might be one page, some might be binders, and when you have to keep track of that much documentation every year, it’s really easy to misplace one or not have it stored in the right place.

Another common trip-up for employers is the wrap document that accompanies the insurance carrier’s certificate and contains all the ERISA language. Not having one, or having one that’s poorly crafted and is missing information, is also an issue Capilla says she sees.

It’s not a matter of if, but when, employers will get notice of a DOL health plan audit, maintains a recent white paper from UBA. In fact, a DOL audit is so significant that once a company is embroiled in the audit process, that should be their top priority, says the paper, Don’t Roll the Dice on Department of Labor Audits.

And while every audit will be different, the process will go much more smoothly if plan sponsors are prepared ahead of time, says Capilla.  Remain calm and notify everyone who needs to be notified in your company, as well as your attorney, broker and insurance carrier, she advises. And make sure the people who are responding to the audit have ample time and ability that their calendars are cleared and that they have the bandwidth to jump through all of the hoops necessary. The quicker you can get
through it, the better for everyone.

Capilla also recommends doing an internal audit, which may reveal areas for improvement, and creating an audit action plan.  Doing so will put you in the best seat should the live letter arrive in your inbox.

In addition to increased outreach to CPAs and enforcement of audit standards by EBSA, the DOL report proposes legislative fixes. It recommends that Congress amend the Employee Retirement Income Security Act definition of qualified public accountant to include additional requirements and qualifications necessary to ensure the quality of plan audits. Under the proposal, the Secretary of Labor would be authorized to issue regulations concerning the qualification requirements.

The American Institute of CPAs said in a statement that its “overarching goal has been and continues to be helping individuals and firms perform the highest quality employee benefit plan audits possible. We will work with auditors, plan sponsors, state CPA licensing boards and the Department of Labor to accomplish that.

The DOL report also urges Congress to repeal the ERISA limited-scope audit exemption and give the secretary the authority to define when a limited scope audit would be an acceptable substitute for a full audit. When auditors have to issue a formal and
unqualified opinion, they have a powerful incentive to rigorously adhere to professional standards ensuring that their opinion can withstand scrutiny. The limited scope audit exemption undermines this incentive by limiting auditors obligations to stand
behind the plans financial statements.

Finally, the report suggests ERISA be amended to give the Secretary of Labor authority to establish accounting principles and audit standards to protect the integrity of employee benefit plans and the benefit security of participants and beneficiaries. The existing patchwork of regulations and rules needs to be overhauled and a meaningful  enforcement mechanism needs to be created, says Phyllis C. Borzi, assistant Secretary of Labor for employee benefits security. The department is proposing, among other measures, legislation that will fix these problems.

Source: Andrea Davis, Employee Benefit News