Group Pension Audits a No-Go Under SECURE Act, Regulators Say

Federal regulators have finalized a set of rules amending annual workplace retirement plan disclosure documents that force large employers in consolidated plans to file separate annual audits, rejecting industry requests for audit relief.

The IRS, the Pension Benefit Guaranty Corporation, and the US Labor Department jointly issued final rules Thursday that modify annual Form 5500 documents and will force large nonexempt employers to file independent audits of their plans even if they are filing as a group.

The agencies did tweak the proposed versions of the rule slightly to eliminate a requirement that grouped plan assets must be held in a single trust and that it be audited separately. The Labor Department initially rejected calls to drop this separate trust audit requirement, but it later said nixing it addresses concerns from the regulated community that the cost of audits under grouped plan filing were rising exponentially.

But the department refused to budge on requirements that large employers ineligible for individual audit exemptions file those audits in addition to their jointly filed Form 5500s. Those are required under generally accepted accounting standards and principles, the department said in its final rule, and nothing in the SECURE Act indicated that Congress was prepared to make wholesale changes to the way retirement plans are audited.

Defined-contribution groups aren’t single plans like multiple-employer plans, the department said.

“It has been the DOL’s experience that plan audits lead to increased reporting of prohibited transactions, such as identifying and disclosing delinquent participant contributions,” the rule states. “The DOL has not changed its view in this regard.”

Plan sponsors that share the same service providers and could file a joint Form 5500 under the 2019 SECURE Act (Pub. L. 116-94) were hoping for the same leeway provided to multiple employer plans that typically are audited on a revolving basis.

Usually employers with more than 100 workers filing their Form 5500 must tack on an independent auditor’s report at their own expense. The audit is intended to double-check plan math, but it also can catch legal loopholes plan advisers and attorneys may have missed.

Only small employers with 100 or fewer workers are exempt from the requirement.

Thursday’s final rule is the third installment of a three-phased approach regulators took to retool annual disclosure requirements in the wake of the SECURE Act.

Those agencies have already begun preparing a new set of regulations enacted due to changes Congress made late last year under the SECURE 2.0 Act (Pub.L. 117–328).