Small defined benefit plans that have received audit waivers need more frequent review, says the Department of Labor’s (DOL) Inspector General. The DOL’s IG sent Report 05-15-002-12-121, which concerns EBSA’s oversight of small plans claiming the audit waiver, to DOL Assistant Secretary for Employee Benefits Security Administration (EBSA) Phyllis Borzi on March 31.
The IG conducted the study because while most DB plans must be audited annually, small plans — those with less than 100 participants — can obtain a waiver from this requirement if they satisfy certain conditions.
The IG argues that the waiver for small DB plans puts them at greater risk of fraud and mismanagement. Accordingly, it conducted its own audit — of EBSA — to see if it is providing sufficient oversight of small plans that avail themselves of the waiver.
The IG found EBSA did not provide sufficient oversight. It noted that EBSA has been able to review the plans claiming the waiver under the Small Pension Plan Audit Waiver (SPPAW) regulations since 1976, but has only done so twice — in 2008 and 2011. And in both cases, says the report, EBSA’s Office of Chief Accountant did not independently confirm numbers the plans reported.
The report indicates that EBSA nonetheless was satisfied with what it found in the 2011 review. It says that EBSA concluded, based on its observations of high levels of compliance from that review, that it would pursue SPPAW compliance only on an ad-hoc basis.
The IG was not impressed. It concluded that EBSA did not have sufficient assurance of the accuracy of the amounts reported and the plans’ ultimate eligibility for waivers, and that EBSA had not allocated sufficient resources to regularly conduct comprehensive reviews to confirm SPPAW compliance.
At the same time, the report did not say that noncompliance was rife. In her response to the IG, Borzi said: “Similar to your observations, EBSA has found nothing to suggest widespread noncompliance with the SPPAW requirements.”
According to Borzi, EBSA has an enforcement initiative in which it reviews a samples of small plans that claim the waiver. The agency examines data from Forms 5500 to gauge compliance, she said, and from that information it estimates that “most small pension plans meet the waiver requirement that at least 95% of the plan assets must be qualifying plan assets.” As a result, she said, “we therefore assess the risk of noncompliance as low relative to that of other reporting compliance violations, such as the failure to file Form 5500.”
In the report, the IG recommends that EBSA:
In her response, Borzi agreed with the recommendations and said EBSA would follow them.
The IG conducted the study because while most DB plans must be audited annually, small plans — those with less than 100 participants — can obtain a waiver from this requirement if they satisfy certain conditions.
The IG argues that the waiver for small DB plans puts them at greater risk of fraud and mismanagement. Accordingly, it conducted its own audit — of EBSA — to see if it is providing sufficient oversight of small plans that avail themselves of the waiver.
The IG found EBSA did not provide sufficient oversight. It noted that EBSA has been able to review the plans claiming the waiver under the Small Pension Plan Audit Waiver (SPPAW) regulations since 1976, but has only done so twice — in 2008 and 2011. And in both cases, says the report, EBSA’s Office of Chief Accountant did not independently confirm numbers the plans reported.
The report indicates that EBSA nonetheless was satisfied with what it found in the 2011 review. It says that EBSA concluded, based on its observations of high levels of compliance from that review, that it would pursue SPPAW compliance only on an ad-hoc basis.
The IG was not impressed. It concluded that EBSA did not have sufficient assurance of the accuracy of the amounts reported and the plans’ ultimate eligibility for waivers, and that EBSA had not allocated sufficient resources to regularly conduct comprehensive reviews to confirm SPPAW compliance.
At the same time, the report did not say that noncompliance was rife. In her response to the IG, Borzi said: “Similar to your observations, EBSA has found nothing to suggest widespread noncompliance with the SPPAW requirements.”
According to Borzi, EBSA has an enforcement initiative in which it reviews a samples of small plans that claim the waiver. The agency examines data from Forms 5500 to gauge compliance, she said, and from that information it estimates that “most small pension plans meet the waiver requirement that at least 95% of the plan assets must be qualifying plan assets.” As a result, she said, “we therefore assess the risk of noncompliance as low relative to that of other reporting compliance violations, such as the failure to file Form 5500.”
In the report, the IG recommends that EBSA:
- include SPPAW filers in its annual risk assessment;
- perform periodic comprehensive reviews of samples of small plans claiming an audit waiver; and
- review compliance with ERISA Section 412 bonding requirements.
In her response, Borzi agreed with the recommendations and said EBSA would follow them.
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