Key insights
- Plan terminations, mergers, and recordkeeper/custodian changes raise fiduciary and audit risk by adding nonroutine transactions, multiple control environments, and greater misstatement risk.
- The effective date drives audit scope and reporting because it determines the proper period, the documentation needed, and Form 5500 timing/disclosures.
- Participant-level accuracy prevents downstream issues. Actions include reconciling net assets across platforms and confirming balances fully transferred.
Is your benefits plan transferring? Learn how to prepare.
The retirement plan industry is undergoing transformation as service providers consolidate and companies merge.
These changes — driven by market forces and regulatory developments — have profound implications for employee benefit plan (EBP) audits. Understanding these transactions is critical for plan sponsors and fiduciaries in an increasingly complex environment.
Why retirement plan industry consolidation is happening
The trend toward mergers among recordkeepers, custodians, and third-party administrators (TPAs) mirrors broader retirement industry consolidation. Large providers seek economies of scale, advanced technology, and expanded service offerings.
For plan sponsors, this often means access to better tools and potentially lower fees. Plan sponsors are also engaging in a lot of activity whether through company mergers, acquisitions, divestitures, or other similar events. Be prepared for the ripple effect these transactions can have on audits.
The impact on EBP audit risk assessment and internal controls
When non-routine transactions such as plan transfers occur, materiality thresholds may need reevaluation to reflect increased complexity and potential for misstatement. Therefore, plan sponsors may expect more audit work to be done in that year depending on what type of transaction occurred and what level of risk is involved.
Plan transfer audit impact examples
For example, a change in recordkeeper or custodian, whether by the plan sponsor’s choice or due to the recordkeeper consolidation occurring in the industry, may be considered as an overall pervasive risk affecting the financial statements as a whole. When multiple control environments exist throughout the year, plan sponsors should consider the impact on controls, including the utilization and coverage of SOC 1 reports — especially the IT environment — to verify they have proper controls in place.
In other situations where a plan merged in, or the plan spun off a division into a new plan, the auditor may consider if this transaction is a significant class of transactions and account disclosure to scope into your risk assessment as an assertion level risk. These types of transactions may elevate inherent risk from low to moderate or high.
Auditors may also consider if the merged-in plan was previously audited. For unaudited plans, auditors may consider obtaining historical records of the merged-in plan to determine if the balance transferred in appears reasonable and complete. Transaction complexity and predecessor plan controls are key factors to consider when designing plan appropriate audit procedures. As the plan sponsor, it’s crucial to maintain supporting records to support these transactions to prepare for their audit.
Response to risk through substantive procedures
Assessing the transaction’s effective date so the transfer is recorded in the proper period is crucial to auditing the transaction in the correct period. The effective date is the date the plan assets are legally transferred to the control of another plan.
Management should provide auditors with relevant plan provisions found in plan documents, plan amendments, board resolutions, minutes, or other equivalents to support the effective date. Knowing the effective date is essential for reporting, since asset transfers may happen on a different day.
Plan asset reconciliations should be performed for accuracy and completeness of net assets between the two recordkeeping platforms. Substantive testing on a participant level should be performed as well. Some key questions to consider:
- Did individual balances transfer properly?
- Are participant investment allocations mapped correctly?
- Did contribution sources allocate accurately?
- Are vesting provisions being calculated in accordance with the plan provisions?
Form 5500 reporting considerations
As Form 5500 is reviewed for material inconsistencies, auditors will evaluate whether the transfer is accurately reported on Schedule H Part II and compliance questions on Schedule H Part IV are addressed appropriately so all merged in/out plans are disclosed.
When plans merge, the timing of the final Form 5500 filings depends on when assets legally transfer, which can create potential for “one-day audits” if merger occurs on January 1. This is different from a plan termination, in which the final Form 5500 occurs when the assets are fully distributed out.
How CLA can help with EBP audits for retirement plan transfers and terminations
CLA helps plan sponsors manage transfers and terminations by aligning audit planning to transaction and control environments. We tailor risk assessment and testing to the event type and consider relevant SOC 1 reports and IT controls where risk often increases.
Our services include documentation and reconciliations supporting clean reporting and Form 5500 filing, including effective-date support, platform-to-platform asset reconciliations, participant-level testing (balances, mapping, sources, vesting), and timing/disclosure considerations for final-year or “one-day” audits.