Form 5500 Schedule H – Accounting Changes Looming

Employee Benefit Plans that file Form 5500 Schedule H may find that changes in Accounting Standards will require additional efforts.

Nov 19, 2021

Employee Benefit Plans that file Form 5500 Schedule H may find that changes in Accounting Standards will require additional efforts to ensure that the audit process goes smoothly and that government filings are completed in a timely fashion. Here’s what you need to know.

Form 5500 Schedule H – Section III – Accountant’s Opinion:

Section 3(b) has changed to confirm whether the audit was performed pursuant to 29 CFR 2520.103-8 and 29 CFR 2520.103-12(d). The changes are to be incorporated with changes in Statement of Accounting Standards 136 (SAS 136), which are effective as of December 15, 2021.

Now, under SAS 136, the audit team will obtain agreement from management that it acknowledges and understands its responsibility for providing the audit team with:

  • A copy of the current plan document and all applicable amendments
  • Administering the plan and determining that the plan’s transactions presented and disclosed in the ERISA plan financial statements conform with plan provisions, including maintaining sufficient records with respect to each participant to determine benefits due or that may become due
  • If an ERISA Section 103(a)(3)(C) audit will be performed:
    • Ensure that the plan is eligible for this type of audit
    • The investment information must be prepared and certified by a qualified institution as described in 29 CFR 2520.103-8
    • Certification must meet the requirements in 29 CFR 103-5, and
    • Certified investment information must be appropriately            measured, presented, and disclosed in accordance with the      applicable financial reporting framework.

When an ERISA 103(a)(3)(C) audit is performed, management must provide:

  • Support that the entity preparing and certifying the investment information is a qualified institution,
  • A draft of Form 5500 that is substantially complete prior to the audit, and
  • Additional support and review to reconcile any reportable findings from the audit team.
  • In addition, the Plan Administrator will need to make a written representation of compliance with its statutory responsibilities for administering the plan with specific representations on the election to use a 103(a)(3)(C) audit. It must also confirm that the bank complies with DOL rules and that the certified investment information is appropriately measured, presented, and disclosed in accordance with the financial reporting framework to compare with information in the plan’s financial statements.
  • In essence, the new audit process will likely involve a much deeper dive into plan administration and review of controls than in the past. It will be important for plan sponsors to discuss the new requirements with their providers to guarantee timing, applicability, and compliance. Sponsors should also open dialogue with their auditors sooner than later to address additional information and documentation that may be needed.

Schedule H Part III – Accountant’s Opinion. The Auditing Standards Board issued a new auditing standard to improve the Accountant’s Opinion, Statement on Auditing Standards (SAS) 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, that addresses the auditor’s responsibility to form an opinion on the financial statements of employee benefit plans subject to ERISA. SAS 136 also addresses the form and content of the auditor’s report issued as a result of an audit of an ERISA plan’s financial statements. The SAS applies to audits of single employer, multiple employer, and multiemployer plans subject to ERISA. Among other improvements, SAS 136 permits the IQPA to issue a form of an unmodified opinion when the IQPA has performed an audit pursuant to 29 CFR 103(a)(3)(C) audit). Schedule H, Line 3b now replaces a “yes”/“no” question with the appropriate check boxes to indicate whether the ERISA section 103(a)(3)(C) audit supporting the Accountant’s Opinion was performed pursuant to 29 CFR 2520.103-8 or 29 CFR 2520.103-12, pursuant to both, or not performed pursuant to either of those sections. The instructions for the questions on the Accountant’s Opinion have also been revised to reflect SAS 136.

William Stuart, ASA, EA, MAA is Vice President & Chief Actuary at BPAS Actuarial & Pension Services.