Defined Benefit Pension Plan Audit Services — DC, Maryland & Virginia

Yes. A frozen defined benefit pension plan must still file Form 5500 annually and include an audited financial statement if it has 100 or more participants. 'Frozen' means no new benefit accruals — it does not mean the plan is terminated or that ERISA annual reporting ends. The plan continues to hold assets for existing participants, those assets must be reported and audited, and the plan sponsor remains responsible for PBGC premiums and actuarial certifications. The audit requirement ends only when the plan is fully terminated and all benefits distributed.

SAS 136 (Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA), effective for plan years ending on or after December 15, 2021, significantly expanded the audit procedures for ERISA plan audits. Key changes include: (1) the term 'limited scope audit' was replaced with 'ERISA Section 103(a)(3)(C) audit,' (2) auditors must now perform additional procedures on investment information even in a 103(a)(3)(C) audit, (3) expanded management representations are required from plan administrators, and (4) auditors must evaluate whether the plan's financial statements are presented in conformity with the applicable financial reporting framework.

The Pension Benefit Guaranty Corporation (PBGC) is the federal agency that insures private-sector defined benefit pension plans. PBGC requires plan sponsors to: (1) pay annual flat-rate and variable-rate premiums — the variable-rate premium is based on the plan's unfunded vested benefits (underfunded plans pay significantly more), (2) file annual premium filings (My PAA portal) with due dates tied to the Form 5500 deadline, and (3) report certain events (e.g., missed contributions, plan termination) through reportable events notices. The PBGC variable-rate premium calculation must reconcile to the audited financial statement figures.

The funded status of a defined benefit pension plan depends heavily on actuarial assumptions: discount rate (used to present-value future benefit payments), mortality tables, employee turnover rate, retirement age, and benefit payment timing. Changes in any of these assumptions create significant fluctuations in the reported benefit obligation and funded status. Auditors must obtain the actuary's report (Schedule SB), evaluate the reasonableness of key assumptions, and reconcile the actuarial present value of accumulated plan benefits (PVAB) to the financial statements.

Under ERISA Section 103(a)(3)(C), defined benefit plans with 100 or more participants at the beginning of the plan year must include an audited financial statement with their Form 5500 annual report. For defined benefit plans, 'participants' includes active employees accruing benefits, terminated vested participants (former employees with preserved benefits not yet paid), and retirees currently receiving benefits. Because defined benefit plans carry obligations to former employees and retirees, many plans exceed the 100-participant threshold even when the current workforce is small.

The DOL penalty for a late or deficient Form 5500 filing is $250 per day (up to $150,000 per plan year). Plans that file Form 5500 without the required audited financial statement are treated as having filed a deficient return — subjecting the plan to the same daily penalty. The IRS also imposes separate penalties for late 5500 filings. Plan sponsors that catch a missed filing can use the DOL's Delinquent Filer Voluntary Correction Program (DFVCP) to file and pay significantly reduced penalties.

The most common defined benefit plan audit findings include: (1) actuarial report not reconciling to financial statement benefit obligation figures, (2) plan document not updated for legislative changes (SECURE Act, SECURE 2.0) — plan operations must match the plan document, (3) PBGC variable-rate premium calculation not reconciling to audited funded status, (4) benefit payments made to incorrect beneficiaries or in incorrect amounts due to administrative errors, (5) investments held in non-qualifying assets or assets with fair value measurement issues, and (6) plan amendments not properly adopted or communicated to participants.

For a defined benefit pension plan audit, auditors typically require: (1) the plan document and all amendments, (2) the most recent IRS determination letter, (3) the actuarial report (Schedule SB) for the plan year, (4) investment account statements from all custodians, (5) benefit payment records — all distributions made during the year, (6) participant census data used by the actuary, (7) PBGC premium filing confirmation, (8) trustee reports and investment manager statements, and (9) Form 5500 draft and all required schedules (Schedule SB, Schedule H). Starting document collection early is critical to meeting the Form 5500 deadline.