When an employee benefit plan (EBP) administrator elects to have an Employee Retirement Income Security Act of 1974 (ERISA) Section 103(a)(3)(C) audit of their plan, certain conditions have to be met. This article will explore certification details of the investments that plan administrators and auditors should consider.
First, all or part of the plan assets held for investment must be held by a bank, trust company, thrift, or similar institution or by an insurance company that is regulated and subject to periodic examinations by a federal or state agency (a qualified institution). Second, the investment information has to be certified by the qualified institution as to completeness and accuracy in accordance with the requirements of 29 CFR 2520.103-5. Such certification must be in writing and signed by an authorized representative of the qualified institution.
While the above requirements appear to be relatively straightforward, auditors often seem to run into certain common deficiencies with certifications when conducting ERISA §103(a)(3)(C) audits:
Certification Is Incomplete
- The plan changed custodians during the year and neither one of them certifies the investment information.
- The plan changed custodians during the year, but only one custodian certifies the investment information.
- The plan administrator fails to obtain a certification of investment information from a qualified institution.
Situations with incomplete certifications oftentimes occur when the plan’s assets are held by more than one custodian, there is a change in the custodian, or there is a plan merger.
Errors & Omissions in the Certification
- The certification does not include the plan name.
- The certification is not signed or signed by a representative not authorized to do so.
- The certification is unclear as to whether it includes all investments or participant loans.
- The qualified institution does not certify both the completeness and accuracy of the investment information.
- The certification is not attached to the investment information, making it unclear as to what information is certified.
- The certification does not cover the stated period; for example, when the plan is terminated midyear, but the certification states that it is as of and for the year-end.
- The certification is issued by other than a qualified institution; for example, by a record-keeper or a brokerage firm that does not act as an agent for the qualified institution.
Incorrect or Improper Information is Included in the Certification
- Investments are not properly categorized by type of investment in the certification.
- Incorrect investment values are included in the certification.
- The certified statement includes contributions and investment activity from the previous or next period, indicating improper cutoff.
These are just some common deficiencies the U.S. Department of Labor finds in EBP audits regarding certifications, which may render the certifications noncompliant with the CFR requirements and may prevent a plan from applying the ERISA §103(a)(3)(C) audit election. Both the plan administrators and auditors should carefully analyze these certifications to understand whether the certifications appear complete and consistent with regulatory requirements. In the plan’s financial statements, plan administrators should fully disclose the investments and/or participant loans excluded from the certification.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.