What are the key differences between a limited scope and a full scope ERISA audit?

1 Limited scope audit

A limited scope audit is a less extensive and less costly option that applies to plans with more than 100 eligible participants and that hold assets in a trust or custodial account that is certified by a qualified institution, such as a bank or an insurance company. In a limited scope audit, the auditor does not verify the accuracy and completeness of the information provided by the trustee or custodian, such as the fair value and existence of the plan assets. Instead, the auditor relies on the certification and focuses on other aspects of the plan's operations, such as participant data, contributions, distributions, and compliance with plan provisions and tax rules.

2 Full scope audit

A full scope audit is a more comprehensive and more expensive option that applies to plans that do not qualify for a limited scope audit, such as plans with fewer than 100 eligible participants, plans that hold assets outside of a certified trust or custodial account, or plans that do not obtain a certification from a qualified institution. In a full scope audit, the auditor performs procedures to verify the accuracy and completeness of the information provided by the trustee or custodian, as well as the other aspects of the plan's operations. The auditor also tests the internal controls and the risk of fraud and errors in the plan's financial reporting.

3 Benefits and drawbacks

Both types of audits have benefits and drawbacks for plan sponsors. A limited scope audit can save time and money, reduce the risk of audit adjustments and findings, and simplify the audit process. However, a limited scope audit also limits the assurance and oversight that an auditor can provide, exposes the plan sponsor to potential liability if the trustee or custodian fails to comply with ERISA standards, and may not address all the areas of concern for the Department of Labor (DOL) or the Internal Revenue Service (IRS). A full scope audit can provide more assurance and oversight, detect and correct any errors or fraud in the plan's financial reporting, and demonstrate compliance with ERISA standards. However, a full scope audit also requires more time and money, increases the risk of audit adjustments and findings, and adds complexity to the audit process.

4 How to choose

The choice between a limited scope or a full scope ERISA audit depends on several factors, such as the size and type of your plan, the quality and reliability of your trustee or custodian, the level of risk and exposure that you are willing to accept, and the expectations and requirements of the DOL and the IRS. You should consult with your plan administrator, your auditor, and your legal counsel to determine which option is best suited for your plan and your compliance objectives. You should also review your plan document, your trust or custodial agreement, and your certification letter to ensure that they meet the criteria for a limited scope audit, if applicable.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?