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DoL Warns Against Hiring Inexperienced Auditors…Time for an RFP

02 . Dec . 15

DoL Warns Against Hiring Inexperienced Auditors…Time for an RFP

Date: 12.02.2015

Dear Retirement Plan Sponsors,


Earlier this year the Department of Labor released a study titled ‘Assessing the Quality of Employee Benefit Plan Audits’.  The study surveyed Form 5500 filings and related audit reports for the 2011 filing year and included a sample of 400 plan audits from a target population of over 80,000 filings.

The DoL study found a high correlation between the total number of plan audits a firm performs and the number of deficiencies: the fewer plans a firm audits, the higher their deficiency rate. The overall deficiency rate was 39% and the DOL estimated that deficient audits put approximately “$653 billion dollars and 22.5 million plan participants and beneficiaries at risk”.  The DOL further warns that audit quality can result in significant civil penalties and jeopardize plan assets.

The retirement plan industry has been highly focused on the fee/service-quality tradeoff for years, especially related to recordkeeper services and, more recently, retirement plan advisors.  The key question all plan sponsors should ask themselves regardless of the service provider type is simply, ‘Are the fees we are paying in-line with the services (and quality of those services) we are receiving.’  In the case of an advisor or administrator, going for the lowest cost provider can result in an opportunity cost of benefits to the participants, ultimately affecting their retirement goals.  In the case of auditors, it is clear that the low-cost option today could lead to direct costs in the future in the form of penalties.

Just as it has advised on following a prudent hiring process for service providers and qualified default investment options (e.g. target-date funds), it is no surprise that the DOL’s proposed ‘next step’ to plan sponsors is to perform a high level of due diligence when evaluating and selecting their plan auditor.  In light of the study findings, plan sponsors who have not recently evaluated their existing relationship would be wise to do so.

Next Steps:  The most common way to evaluate service providers is through a request for proposal process (RFP) where the retirement plan Committee sends a list of relevant questions to pre-qualified audit firms to compare their qualifications, services and fees apples-to-apples and document their final decision.

Resources:  Knowing the questions to ask and what to look for in the responses can be challenging.  InHub (www.theinhub.com) has put together a sample list of questions which can be found here and also offers an online eRFP tool and optional RFP assistance so plan sponsors can efficiently manage this process.  Additionally, the DOL provides tips for selecting an auditor at www.dol.gov/ebsa/publications/selectinganauditor and the AICPA Employee Benefit Plan Audit Quality Center is also a very helpful resource.



The InHub Team

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