Section 103(a)(3)(C) of the Employee Retirement Income and Security Act (ERISA) allows employee benefit plan and 401(k) plan administrators to elect to instruct the employee benefit plan or 401(k) plan auditor not to perform any additional procedures with respect to the investment information prepared and certified by a bank or similar institution or by an insurance company that is regulated, supervised, and subject to periodic examination by a state or federal agency.
As part of this rule, it is the responsibility of the plan administrator to determine whether the conditions for electing an ERISA Section 103(a)(3)(C) audit have been met. There are 4 conditions that need to be considered by plan management.
- Is the investment information prepared and certified by a qualified institution?
- Is the certification signed by an authorized representative?
- Did the qualified institution certify both the accuracy and completeness of investment information?
- Does the certification of the related reporting package include language that qualifies or calls into question whether the investment information (or certain investment information) is complete and accurate?
However, in addition to the 4 conditions above the plan administrator should also be aware of some common deficiencies in the ERISA Section 103(a)(3)(C) certification that could impact the ability of the employee benefit plan or 401(k) plan auditor from performing limited procedures over the investment information. Some of these common deficiencies include the following:
- The certification does not include the plan name.
- The certification is not attached to plan investment information, so it’s not clear what information is certified.
- The qualified certifying institution certifies to either the completeness or accuracy of the investment information, but not both.
- The certification is not signed.
- The certification is signed by an individual who is not authorized to represent the qualified institution.
- The certification(s) do not cover the entire period under audit.
- If the employee benefit plan or 401(k) plan changed custodians during the year, the employee benefit plan or 401(k) plan auditor will require a certification from both.
- The certification does not cover the stated period (for example, the plan was terminated during the year (on 6/30/X6) but the certification states that it is as of and for the period ended 12/31/X6).
- The certification does not include all investments (for example, it covers separate account assets but does not cover general account assets).
- The certification is issued by an entity other than a qualified institution (for example, a recordkeeper that is not a bank, trust company, or insurance company) or similar institution, and is not acting as an agent for a qualified institution (for example, brokerage arms of certain banks/providers or investment companies).
Although it is the responsibility of the plan administrator to determine if the ERISA Section 103(a)(3)(C) certification is sufficient; your employee benefit plan or 401(k) plan auditor can be a good source of information if you have questions.