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403(b) Audits: Lessons Learned

Problems and challenges higher ed institutions encounter with retirement plans
University Business, April 2012

Until recently, many 403(b) employee retirement plans were viewed not as actual plans but as clusters of individual employee contracts with different vendors. Higher ed institutions were like middle men, with their role limited to passing through employee contributions to individual plans. Administrators saw little need to pay much attention to their 403(b) plans or to exercise much oversight of third-party mutual funds or insurance companies managing employee funds.

All of that has changed. The Internal Revenue Service and Department of Labor (DOL) now examine these plans more carefully. Since 2009, plan sponsors have been subject to very similar financial reporting, governance, and monitoring rules as other employee benefit plans. Complying with their new responsibilities has required new administrative procedures.

In our role as 403(b) plan auditors, we’ve noticed some common problems and challenges that universities encounter as they make this transition. Here are recommendations for assuming greater roles in plan management and oversight.


Historically, 403(b) vendors generally managed all facets of contracts with employees, with limited involvement by the plan sponsor. It’s now vital that plan sponsors clearly assign roles to departments and internal personnel. Decide who is responsible for:

  • Preparing a combined trial balance of all plan activity for the fiscal year
  • Drafting financial statements
  • Reconciling third-party records and reports to internal payroll records


Plan sponsors are liable for 403(b) plan operation. While plan administrators will continue to rely on third-party vendors for recordkeeping and investments accounting, final responsibility for monitoring the record keeper and selecting the current menu of investments rests with the sponsor. Reviewing service-provider activity can determine compliance with plan documents and contracts. Vendor controls can vary widely, and plan administrators should conduct their own oversight to ensure anticipated mechanisms are in place.


How employee deferrals are deposited and reconciled is critically important. No issue can get a plan into more trouble and cause prohibited transactions as when a plan sponsor fails to monitor and control employee deferrals.

Plans should have detailed contribution schedules by payroll date that show employee deferrals or matching contributions and when they were deposited. The DOL interprets delays in depositing employee withholdings as the employer using funds to which they are not rightfully entitled. For plans with multiple vendors, ensure that deposits are being made into the right participants’ accounts with the appropriate record keeper. Have procedures in place to reconcile total plan deposits to the payroll records.


Preparing for year-end audits can be very time-consuming, especially when plans need to gather information from multiple vendors. The following pieces of information are especially critical to an expeditious and successful plan audit:

  • Year-end reporting packages from third-party administrators and investment statements
  • Copies of all investment policy statements
  • A list of any loans outstanding at the end of the year, if loans are allowed by the plan
  • Reconciliation of total participant contributions per the record keeper to total plan contributions per the payroll records at the end of the plan year
  • Contributions receivable detail as of plan year end 
  • A listing of all distributions by type (e.g., hardship, termination, death, normal retirement) made during the plan year. The listing should tie to total distributions per the trust statements.
  • A copy of the year-end compliance testing required by the Internal Revenue Code, including documentation of any action required by the testing results.

College and university 403(b) plans are entering a new era of transparency and accountability. Assuming much greater responsibility for the oversight of these plans presents many operational challenges, but plan administrators can seek the advice of their auditors—who can offer significant insight into best practices for administering plans.

Lisa M. Wills, CPA (, is a principal in the firm Wolf & Company, P.C., providing assurance services to educational institutions. Anthony T. Carideo Jr., CPA (, and an owner at Wolf, provides assurance, tax, and business consulting services to tax-exempt organizations.