Auditors Must Adapt Their Audit Approach with the Technology Used to Administer Retirement Plans
Over the past decade, I have seen many changes in the retirement plan industry. One of the top changes is the overwhelming acceptance of the use of technology to make the administration of plans a much easier task. Gone away (at least in 90% of the plans I have audited) are the hardcopy enrollment forms and change forms. Gone away are the never-ending changes that human resource and the payroll departments must make to participant records and the payroll system (at least most of the manual inputs). These changes also impact how auditors will need to approach the audit of the plan.
Technology has streamlined the approach to making changes to participant deferrals. Participants can change their deferrals and investment elections through the plan’s third-party administrator website, via a secure personal login. After these changes have occurred, the third-party administrator will send an electronic report to the plan sponsor, which they will use to upload any changes made to participants’ payroll withholdings (either electronically or manually). Many plan sponsors have a bundled plan that includes their payroll service provider, which enables the update of the participants’ that made changes to be completed simultaneously. Many of the service providers I have worked with are able to generate a report that shows all the participant changes during the year, which includes investment directives and deferral rates. This report can be used by the auditor for an assortment of tests, such as, but not limited to, the creation of confirmations sent to participants to ensure they did choose the applicable deferral rate and investment directives.
Participants can request loans and distributions through their personal login as well. Information regarding the type of distribution is keyed into the site and their request is usually sent to the plan administrator or a trustee for review. After it has been reviewed, the plan administrator or trustee will approve the distribution for payment to the participant. This is all accomplished online, with the reviewers receiving either a report or an email notifying them the participant chose a distribution. Loans are handled in a similar fashion, with the participant choosing the amount needed (subject to limitations established by the plan documents, usually a percentage of the participant’s vested balance) and the time to repay the loan. If the loan is for the purchase of a principal residence, documentation is usually requested by the third-party administrator to prove they are purchasing a home. Many of the third-party administrators I have worked with offer a lot of this documentation on their web portal, which the plan sponsor can request the plan auditor be granted access from the third-party administrator via a reviewer’s ability only (to where no changes can be made by the auditor on the site). Plan auditors can use this access in order to not bug the plan sponsor for loan and distribution documentation.
The plan sponsor also has access to many of the important documents of the plan via the secure website of their third-party administrator. Sending disclosures to participants are completed via email and through the occasional snail mail, if necessary. Plan sponsors are leveraging the abilities of the third-party administrator’s online web portal to reduce the time spent on plan administration, enabling them to spend more time on other responsibilities required of them from their company. This leveraging is priceless to them by reducing headaches in making corrections from manual entry errors, ensuring proper documents are sent to plan participants electronically or mail (as sent by the third-party administrator), making enrollment and onboarding easier, and many others. The plan auditor can also use the access granted to them to review for any amendments to the plan or any other changes. Sometimes the plan administrators don’t think of certain changes that occurred during the year since the retirement plan isn’t always on the fore front of their mind, which is understandable when you look at all their responsibilities to the plan sponsor on a daily basis.
As retirement plan auditors, we must remind ourselves that we are in a constantly changing world of technological advances, which will continue to challenge our audit approach to retirement plans. We must stop taking an audit approach with how plan administration items were documented in the past, but instead, investigate how we can incorporate today’s technological advances in our audits. It makes no sense recommending plan sponsors keep hard copy documents for changes made by participants when the participants go to their online personal web-based portal to make changes. The plan sponsor switched to this technology to make their lives easier and the plan more streamlined, therefore, why would we not incorporate the same regarding our audit approach?
And the companions, known as the 401k.9s