Fee Fishing Lately?
Audit season is here. Discrimination testing is complete and now you get to start the process of either finding an auditor for your plan or beginning the audit with you past auditor. Perhaps your past auditor has already provided you a "present" a few months ago to put a foothold on performing your audit. These “presents” are contained in a letter known as an engagement letter from the retirement plan auditor. These beautiful letters contain all the legal jargon needed to make plan sponsors’ heads spin, while also disclosing the fees.
Like most of the service industries in our great nation, CPA firms can increase revenues in generally three areas:
Organic growth, meaning to grow their firm by adding clients to their roster
Adding services to clients they already serve
Increasing fees on existing clients
Unfortunately for the existing clients, they are the low hanging fruit. It takes a fair amount of time and effort to add clients to a firm’s practice, as well as increasing services to existing clients. Therefore, the existing clients may take a brute punch when it comes to fees. Of course, the fee increase depends on may factors, such as changes in recent accounting pronouncements, new laws and regulations, etc. These changes can have an affect on the time spent by the firm conducting the services.
Speaking directly about retirement plan audits, there usually isn’t much of a change in this industry that affects the audit (albeit any major changes in the Plan itself). The most recent being FASBs issuance of ASU 2015-12 and ASU 2015-07, as well as a few new ones coming down the pipeline now. But the additional time added to the audit based on these changes are not significant.
Of course, there are always inflation concerns that drive pricing. Firms do have immense pressure on them to pay their team members well and to offer benefits that will keep them around for years to come. But to play devils advocate, at what rate should that affect a retirement plan audit? Maybe it’s a wise idea to schedule a call with your plan auditor to understand any significant fee changes?
Consider the below when looking at the fees associated with your on-going auditor:
What was the experience like with them and your team members last year?
Would your team want to work with them again?
Would you recommend them to another plan sponsor (this should be a tell-tale sign that you may want to make a switch if you would not recommend them)?
Did they give helpful feedback or recommendations regarding the plan or the controls in place over the past few years?
Did they have an exit interview with plan management to go over any matters noticed?
Were they timely with email responses and phone calls?
Did they beat you to death with requests (especially asking for the same items over and over again)?
Perhaps the best question to ask along with the fee increase is, what’s in your audit?
And the companions, known as the 401k.9s