Employee Benefit Plans

The Employee Benefits Security Administration (EBSA) which is part of the Department of Labor oversees the following number of benefit plans which cover 155 million workers, retirees, and dependents: (approximately)

  • 2,800,000 health benefit plans, 
  • 837,000 private pension plans, 
  • 521,000 other welfare benefit plans

Of all those benefit plans, somewhere between about 80,000 and 100,000 are required to be audited. Here are some tools and services for complying with the employee benefit plan audit requirement:

Nearly all ERISA-covered employee benefit plans must satisfy some Form 5500 reporting requirement, but only a subset must include audited financial statements. The plan administrator or plan sponsor is responsible for compliance reporting; but an industry of several thousand third party plan administrators, a handful of benefits consulting firms, a handful of benefit plan recordkeepers, and several thousand CPA firms that also perform the required ERISA audits.

If you asked many ERISA auditors what system actually powers the engagement, the answer would be: Excel. Despite all the specialized platforms, a significant amount of reconciliation, testing, participant sampling, and audit support still flows through: Excel, CSV exports, PDF reports, Email. This is one reason ERISA audits remain labor-intensive.

A surprisingly large portion of the approximately 100,000 annual ERISA audits still involves moving data among recordkeeping systems, TPAs, spreadsheets, and reporting forms.

Third-Party Administrator (TPA) software does exist. TPAs prepare a huge share of Form 5500s for small and mid-sized plans. Common software platforms include:

  • ASC (American Society of Pension Professionals software)
  • Relius Administration (WTW)
  • DATAIR
  • PensionPro
  • ftwilliam
  • FIS Relius Document System

These systems handle things like: Eligibility tracking, Vesting, Employer contributions, Nondiscrimination testing, Government compliance reporting, Federal compliance and tax reporting including Form 5500 production. Many CPA firms and TPAs use these software products routinely; but Excel is still the dominant tool.

The ERISA auditor typically doesn't maintain participant records. Instead, the auditors pull information from recordkeepers and TPAs. Common audit products include:

  • CaseWare
  • CCH Engagement
  • Thomson Reuters AdvanceFlow
  • AuditBoard
  • Wolters Kluwer audit suites

The interesting thing is that most audit work is still heavily spreadsheet-driven.

The ERISA ecosystem is not one system. It's hundreds of disconnected systems that need to be reconciled. Think about a typical 401(k) audit which includes: a payroll system, a record keeper, a third party administrator system,  trust/custodian system, Form 5500 system, financial statement system. Each system is owned by a different organization, has a different data model, and was built for a different purpose. The electronic spreadsheet becomes the "universal translator" which, with the assistance of humans, glues all these different systems together.

Because of all the fragmentation; errors and fraud are possible.

Reconciliation of all these fragmented systems is the real work.  It is not about "producing a report", it is about proving that: Payroll Contributions = Participant Accounts = Trust Assets = Financial Statements = Form 5500

The specialized systems do not naturally agree with each other. For example:

  • Payroll says $10,022,151 was withheld.
  • The recordkeeper says $10,018,432 was deposited.
  • The trust reports $10,018,432.50.
  • The financial statements round to $10,018,433.
  • The Form 5500 reports another number because of timing rules.

An auditor needs someplace to investigate the differences. That place is Excel.

Spreadsheets persist because they are currently the cheapest and most flexible semantic integration layer in the system. They're not really a calculation tool. They're functioning as an informal, human-maintained ontology that bridges all the disconnected ERISA systems. That's a surprisingly powerful role, and one reason they've survived for decades.

The economics are surprisingly unfavorable to replacement. A typical small plan might pay: a few thousand dollars for administration, a few thousand more for audit. There is often insufficient revenue to justify building highly sophisticated, integrated platforms.

Additional Information:

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