How Plan Sponsors Can Think Like Auditors

I was recently asked about the single most important risk factor that auditors assess when preparing for an employee benefit plan audit. In almost every situation, the most important factor we look for is the “tone at the top.”

The tone we look for is one that exudes a sense of ultimate responsibility for the plan. Following the plan document and meeting its stated purpose are critical. Although this sounds simple, it’s surprising how many plan sponsors feel they have outsourced the ownership and responsibility for governing the plan properly.

With the great outsourcing opportunities available today, it often makes sense to outsource to dedicated industry experts. The problem begins when a plan sponsor confuses outsourcing of services with outsourcing of ultimate fiduciary responsibility. The smart opportunities to outsource can give plan sponsors a false level of confidence, allowing responsibility to drift away over time. At the end of the day, the real responsibility still lies with the plan sponsor.

So what’s the ideal tone at the top when it comes to heavily outsourced plan service providers? From an auditor’s perspective, it is one that takes responsibility and ownership for the selection of a provider, monitoring providers, ensuring the plan document is followed and that investment policy statements are adhered to.

The right tone approaches outsourced service providers as partners with a specific skill set, helping plan sponsors best meet the objectives outlined in the plan document. Having a “buck stops here” attitude is one that auditors will focus on when assessing the risks of a plan. It is the tone that benefit plan regulators first look to as well.

Shane has extensive experience assisting his employee benefit plan clients understand their goals and provide proactive advise. He can be reached at 970-282-5405 or at sbrown@eksh.com. Follow Shane on Twitter at @constructorcpa and on LinkedIn at linkedin.com/in/shanebrowneksh.