When can a pension plan conduct a limited scope audit?


Your auditor has suggested that you move to a limited scope audit for your company's pension plan because it is less costly. What is a limited scope audit and how does it differ from a regular audit? If you move to a limited scope audit, are there any additional requirements that you should know about?


Section 103(a)(3)(A) of the Employee Retirement Income Security Act (ERISA) requires a plan administrator to engage an independent qualified public accountant, on behalf of all plan participants, to examine the plan's financial statements on an annual basis. This audit requirement applies to plans that have 100 or more participants on the first day of the plan year. If your company's plan has fewer than 100 participants on the first day of the plan year, an independent audit is not required.

ERISA Section 103(a)(3)(C) allows a plan administrator to elect a limited scope audit in lieu of a full scope audit. The rules regarding limited scope audits are set forth in Department of Labor regulations.

If a limited scope audit is elected, the auditor generally will not need to audit investment information certified by a bank or similar institution or by an insurance carrier that is regulated, supervised, and subject to periodic examination by a state. However, the auditor will still need to audit other information including non-investment activity of the plan, such as participant eligibility,employee and employer contributions, benefit payments, and plan administrative expenses.

A limited scope audit is only available if the trustee or custodian certifies to both the accuracy and completeness of the information submitted. It is not available if the trustee or custodian certifies only accuracy or completeness, but not both.

The U.S. Securities and Exchange Commission (SEC) does not permit limited scope audits to be included with Form 11-K filings with the SEC under the Securities Exchange Act of 1934. If your company files a Form 11-K for your plan, you may not rely on a limited scope audit.

If your company does elect a limited scope audit, the plan administrator of your company's pension plan should confirm the following information:

  1. Qualified Institution Status. The certified trust statements are prepared by a qualified bank, trust company, or qualified institution.
  2. Plan Name. The certification specifies the formal plan name.
  3. Attachments. The certification is attached or is included with the information being certified.
  4. Entire Period of Audit. One or more certifications are provided for the entire period of the audit. For example, if the trustee of your company's plan is changed during the plan year, it would generally be necessary to provide a certification from each trustee so that certifications are provided for the entire plan year.
  5. Completeness. The qualified institution certifies both completeness and accuracy of the investment information (with no caveats or other qualifying language).
  6. Authorization. The certification is signed by an authorized representative of the qualified institution.

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