EP25 - Employee Benefit Plan Audits: What ESOP Companies Need to Know

In this episode, Makenzie Wirth sits down with David Thrush, Principal in Doeren Mayhew’s Audit Department and National ESOP Practice Leader, to break down why employee benefit plan (EBP) audits are essential for ESOP companies. With extensive experience in ERISA compliance, employee benefit plan audits, and ESOP administration, David explains how EBP audits support accurate Form 5500 reporting and what companies should be doing now to prepare for upcoming deadlines. From building an annual ESOP calendar to coordinating with service providers, reviewing census data, participant statements, valuations, and distributions, this conversation highlights the year‑round planning and compliance practices every ESOP company must embrace to stay compliant and avoid surprises.

If you’re looking to strengthen your ESOP processes, improve audit readiness, and stay ahead of regulatory requirements, this episode is a must‑listen.

Transcript

SPEAKER_00 0:13

Hi everyone, welcome back to another episode of Journey to an Aesop and Beyond. I am your host today, Mackenzie Wirth. And today we are diving into a topic that is pretty critical for every ESOP company, but one that probably doesn't get enough attention until a deadline is approaching or maybe a regulator comes knocking on your door. And that is employee benefit plan audits. So if you've wondered whether your company is doing enough to stay compliant or what auditors and regulators are actually looking for, I think today's conversation will be really helpful for you. And joining me today is David Thrush, a principal with Doran Mayhew and a national ESOP practice leader. David has a breadth of experience with employee benefit plan audits, and I'll probably start saying EBP audits just to shorten that. But I'm excited to have him on today. So thanks for joining me, David. And I'll I'll pass it over to you to let you introduce yourself and give a little background on your experience.

SPEAKER_01 1:21

Yeah, thanks, McKenzie. Appreciate you having me on today. You know, my name's David Thrush. I'm a principal here in the audit department based out of our headquarters in Troy, Michigan. ERISA and employee benefits and eSOPs are really pretty much all I do your year-round. As McKenzie mentioned, kind of the resident ESOP accounting and audit experts at the firm. So really we're in the peak season now with, as you said, EPP audits, but it is critical plan audit season. Pretty much 95% of what I'm doing right now, this time of the year, is employee benefit plan audits, including eSOPs. So this conversation comes at a great time.

SPEAKER_00 2:02

Exactly. That's one thing I meant to mention too, is that the whole purpose was that this was that time of year. I'm sure it's very top of mind for a lot of a lot of clients right now.

SPEAKER_01 2:13

Yes. Yeah. So at the firm here, we do over 500 qualified plan audits. It might be closer to 600 at this point based on this year's numbers. And a large number of those plan audits are ESOPs. You know, so we'll be happy to talk through a number of different things related to those ESOP plan audits today.

SPEAKER_00 2:32

Awesome. Yeah, and I think one of the big reasons we wanted to have you on our podcast is that I think many ESOP companies tend to think about the compliance as a one-time event or once-a-year event. And maybe that's when the valuation is happening or when the Forum 5500 is due, or when auditors are doing their field work. But I think in reality, and as we both know, managing and administering an ESOP is a whole year-round process involving multiple parties. So maybe let's start by walking through that year-round process, David, and who's involved, how all the various parties work together, probably at a higher level. And then we'll get into really what an eB pod EBP audit actually is and why it's required and how it connects to the Form 5500 reporting.

SPEAKER_01 3:26

Sure. Yeah. And it's uh, you know, I like to tell my clients that, you know, building the ESOP calendar is really important just because there's so many different things throughout the year that need to be in place, and there's deadlines certainly by regulators, banks, uh trustees, and such, and a lot of different parties. But, you know, from the accounting and audit standpoint, you can really look at it too from two perspectives. So you have all the annual financial statement audit work that's done by your CPAs, your auditors that'll come out a couple weeks to a month or two after year end. They'll do the traditional review or audit, you know, whatever the plan sponsor needs. And it's really important to know that, you know, with the ESOP, there's so many pieces that are intertwined. And I almost refer to it as a circular process where all of the different providers need each other and different pieces of information that each is producing. So as an eSOP company and plan sponsor, it's really important to lay the groundwork up front and one, understand who's doing what for you and what the deadlines actually need to be. So, you know, most importantly to a lot of a lot of my ESOP clients is they want to deliver participant statements by a certain date every year. You know, maybe it's June 30th. So essentially, you want to build your key deadlines and your ESOP calendar around that to make sure that you can get to that June 30th deliverable date. So that essentially means I need to have audit field work done with my corporate auditors by, you know, whatever a date it needs to be, maybe it's the end of February, to turn around a draft audited financial statement to the valuation firm who's going to need time to not only conduct their diligence work, but also draft the report and discuss with the trustee, which then eventually gets fed to the TPA of who can generate those participant statements and eventually start your plan audit as well, because that's all intertwined. So there's a number of different pieces from you know, an accounting, fiduciary, administration. That doesn't even talk about board meetings or all the other things that happen throughout the year. But the biggest advice that I can give people is that you need to understand those key deadlines, you know, discretionary, maybe your participant statements, and then those that are hard, hard set. So any IRS deadlines, so company tax return, uh, ESOPs tax return, that those types of things to make sure that you're well prepared and you have a plan in place to have success during the year.

SPEAKER_00 5:54

Yeah, I think that's all super helpful information. And I like how you kind of with the various parties involved and everything that's required, kind of giving that starting point. Okay, when would you like your participant statements to be out and then back into everything else that way? I also think it's funny you mentioned how everything is circular, which it it really is. I feel like we often hear from our clients like, oh, it's the the chicken and the egg, like you need to you need the valuation in order to finish the audit, but the valuation firm needs your audit. So it's like it's it could be very confusing for like of course someone that's if it's their first year as an Aesop. So understanding those mechanics and and the process and how everyone works together is super important to know before things really start kicking off.

SPEAKER_01 6:47

Yeah, and it's important too to make sure that you're having those discussions as early as possible because the the worst thing is is you start thinking about your timeline once you're a couple months into the year, and then you know, provider schedules are packed and and you kind of get bumped down lower into the queue. So I always, you know, uh recommend with my clients that October, November, you know, at at the latest December or early January, you really need to have that timeline in place to make sure that you you get on the calendars of all the providers that you need to work with throughout the year to work towards those end goals.

SPEAKER_00 7:22

Right. Yeah, I think we could probably spend a whole nother episode talking about the whole timeline and the the annual, the annual timeline and process. But since we want to focus on the EBP audit itself, we'll we'll assume all that's kind of already done. We've gotten past the big pieces, and now we're at the part where the comp the employee benefit plan is being audited. So let's talk about if you can provide kind of just an overall what is an EBP audit? Why is it required? Who is it required for, and how does that tie into the Form 5500?

SPEAKER_01 7:59

So an ESA, you know, specifically is a qualified retirement plan governed under the rules of ERISA. And what I like to tell people, you know, so at Doran Mayhew, we don't do SEC or PCOB audit work by choice. So when I'm conducting trainings and talking to different people, I always like to emphasize the fact that outside of PCAOB work, I feel like these employee benefit plan audits are some of the most regulated audits that we do at the firm. And the reason why is because it's a qualified plan under IRS rules, it's required to file a tax return, which gets submitted to the IRS. Because you have a benefit plan that's in place for employees retirement benefit, you have the Department of Labor involved since there's an employment piece. And then because it's an audit, you have an audit that's done, you have all of the gap accounting rules in place as well. So you really have three different sets of rules and three different rule setters that we need to kind of make sure that we're following the steps. So the audits required to get attached to that tax return that goes to the IRS. And not all companies that have eSops need to file an audit. All eSOPs file a tax return, but there are different variations of tax returns based upon the size of your ESOP. And there's different nuances to rules, but really the um the rule simply stated is when you're at about 100 balances in your ESOP, that's what triggers the audit. It really looks at eligible headcount as well. But generally, if you're eligible to participate in the ESOP, you're getting that contribution. There may be a delay by a few months to a year, depending on the specifications of your specific ESOP, but it's really driven based on the number of heads or lives in the ESOP itself. So, you know, in a if you're a first-year ESOP that's created, and this is a lot of times where I'll get a you know, a 911 call once or twice a year around deadline time, generally the audits driven by headcount or lives on the first day of the plan year. But when you're in your first year of creating the ESOP, it's actually based on the headcount at the at the end of the year. And the important thing to also think about, too, and again, there's different nuances, but if you're doing a backdated contribution, and we're gonna get try not to get too technical here, but if you do a backdated contribution for the prior year and the ESOP's created a year prior to take advantage of the tax benefit, there could be a potential audit that's needed for that first year. So your record keepers do the plan's record keeper does does a really good job of tracking the headcount and the balances because they're doing that annual reporting for the plan. So certainly they should be the ones that are flagging, hey, your headcount's at or above that audit threshold, and we'll let you know. But generally keep in mind if you have a hundred people or more in your ESOP, you will need that audit.

SPEAKER_00 11:03

Yeah, I think that's super helpful. And also for any of our listeners that maybe they are in their first year of an ESOP and are panicking as they hear us talk about EVP audits that are starting now, essentially. Just know you may, you may or may not be required to have that audit. But as David mentioned, I think the TPAs do a great job at keeping that communication there. So maybe let's get into what it looks like or how can a company prepare for the EVP audit? What can they do? Maybe if it's not throughout the year, but maybe if they know the season's approaching, what can they start doing and thinking about?

SPEAKER_01 11:46

Yeah, it's it's all about upfront planning work. And you know, I can't stress that enough in different aspects related to the ESOP, with just making sure that you have a timeline built in and same thing for prep work for an audit. And and I think it's important to note too, and I don't think we mentioned it, the due date for these audits. So if you're a calendar year end East, so 12th third December 31st, year end East, the Form 5500, which is the plan's tax return, and the audit is due to the IRS on July 31st. However, there is an extension that you can file, and I'd say 90% plus of my clients file extensions, which isn't a blemish at all. Um you're allowed to do it. It's totally acceptable. That extends the audit and the tax return to October 15th. So essentially you have most of the year to get the audit done. But you know, it may seem like you have a lot of time, but there's plenty of things that you can be doing as a best practice in the background to stay to get prepared. And the audit, you know, really looks at, I like to explain it as you there's a it's a two-part audit. You're auditing the record keepers' work, so distributions, eligibility, and enrollment. But then we're also auditing payroll records, the plann sponsors' records, the company's records. So to have an efficient audit, especially in an ESOP, it's important to make sure that that census data that's being submitted to the TPA is locked tight. And that's for a couple of different reasons. One, you want to make sure that all employees are included on that census report, whether they're eligible or not, because you need to go through for compliance testing, the whole employee base is considered with that. And then also because an eSOP is only valued once a year, meaning it's not like a 401k plan where you can log on to the TPA's website and every day you see different numbers. An ESOP, it's only once a year, whenever the valuation's done. It's important to make sure that all of the demographic information and changes of the employees, so new hires, terminations, retirements, all of that's on the census correctly because the TPA is going to use that when they do the annual allocations. And uh, you know, a common problem that I'll see too in audits is that different all plans are different because you have your plan document, which is essentially your roadmap as to here's how the plan should run and any nuances and and specifications. The definition of what's allowable for plan compensation, meaning what the TPA is going to use to allocate that annual ESOP contribution, is going to be different for every company. And making sure you understand what that definition is, it is something that you can do really early on. So you close, you send your W-2s and you close payroll in January, you can do that whole analysis of what is eligible compensation. So if you have certain things that are excluded, say, you know, bonuses or fringe benefits, cell phone reimbursements, that type of stuff, you want to make sure that you have all that delineated and you've done your checks because the thing that can happen, and it does happen more than what you would think, if something's missed on that file, whether it's you know, me, your friendly auditor that catches it, or you know, if it's caught early or, you know, unfortunately after the fact, it it really messes up the timeline and then can kind of be a hindrance on the goals that you may have already set uh going into that year.

SPEAKER_00 15:17

Yeah. Yeah, I can see how that can be create a big problem, and you have to go back and figure out the the correct share allocations and like you mentioned, start the process over.

SPEAKER_01 15:31

Yeah, and and people may say, like, I haven't gone through this before. Like, what does that mean? You know, how do I do that? Tell tell me in tell me in simple terms, how do I make sure, you know, I stay out of potential issues with allocations because you know, I I only gave what I thought was correct. And I recommend do little mini audits of the data that you've done. So, you know, look at pick if there's 200 people on the census report, pick 10, 15, 20 of them and make sure that the hire dates match up. Maybe you pick the people that have the current year hire dates, do the new people that are going to be on the on the spreadsheet, or or verify some of the termination dates just to make sure that you know, whoever input the data, if it wasn't yourself, that it's in there correctly. So that's one way to do it. And similarly, you know, I recommend doing that once the final allocations come out as well from the record keeper. So that's something that you can do to work ahead and stay ahead of issues, even before the auditors come in to, you know, to do their work, which you know is going to be on your behalf and the participants' behalf.

SPEAKER_00 16:34

Yeah. A lot of good controls that you can implement, put in place to make sure you're staying ahead of these issues. And I'm sure for companies that maybe never even had any sort of like review or audit for their company's financials, like now having an EVP audit, this can sound overwhelming and what's involved can sound overwhelming. But for our listeners, if if you go back and listen to our previous episodes, this is part of the reason we harp on having those ESOP committees to set up and and just being aware of what's to come when you transition to an ESOP company and know that it's not just the transaction closes and that's that's it. There's a lot more to it. So let's get into the key audit areas that are that are tested. I know we mentioned a few at a high level, but if we can kind of walk through what can companies expect for their auditors to really hone into what data are they really focused on?

SPEAKER_01 17:35

Yeah, no, happy to do that. So, you know, kind of like I already alluded to, one of the biggest areas that takes the most amount of time is really we call it eligibility verification. So that's making sure that those that are allowed to get a contribution and participate in the ESOP actually receive the benefit that they're entitled to. So, you know, it's typical in the audit that we'll pick a sample of employees, we'll pick people who are newly eligible, we'll pick people who have been in the plan if it's a ESOP that's been around for, you know, a couple years or more. And then we'll also pick people who have terminated service, whether it was voluntary for other reasons or for retirement. And we'll make sure that they got in or out of the plan at the correct time, because that's that's obviously critical. Because if someone was missed or was added in when they shouldn't have, you know, that would that would change the whole formula um component of the allocations. We'd also look at if you are a company who has like a collective bargaining agreement and you have union employees, there may be specifications where those employees are or are not allowed, or may get to participate at a different level than the non-union employees. So we also look at that at the same time. So in those situations, or if you have temp workers in that that may not be allowed to participate in the ESAP, you know, we also look at those to make sure that they are not on the plane if that's how it's supposed to be written. And then once that's done, it's really digging into those allocations that we're going to be receiving from the from the record keeper. And this is again where I encourage, you know, the on the client side, don't just accept, you know, what the TPA has done at face value. We're obviously as auditors going to check all that, but you still have a fiduciary obligation to understand how the calculations have been done. And it's generally going to be based on that compensation number that you're providing to the TPA on the census. They're probably not going to be going through and doing independent checks. They'll probably make you sign some type of attestation that you've given them, complete and accurate data. And then it's our job as auditors to go through and test a sample. But we essentially, when I do an audit, I'll look at the participant statements that the TPA has provided. And every bucket, so the beginning balance, any activity that happened throughout the year, and then the ending balance, we're recalculating the shares that have been that are in the participant's account. And then we're also recalculating if there's a cash or an investment balance, we're doing that as well. So we're really going through, and it's not just we're going to pick random buckets on someone's participant statement. We're really rolling it forward from start to finish to make sure that there aren't any anomalies. So that's a that's a huge component. And that's probably the most impactful to a to a participant with hard conversations that could need to be had if there were issues. So my recommendations always, unless we're being reactionary and the audits cutting it close to the deadline, I always recommend as good practice, especially in the early years, wait until your auditors at least looked at the allocations before you allow the participants to get them on release day or however you want to call it, share real share price release day when you give out statements, if that's a thing that the culture of the company has done, just to prevent any issues, if issues with recalling statements. Now, another thing, and this is really, you know, when I teach courses in that too on the accounting and audit side with eSOPs, this is always the most controversial area, but nonetheless, it's very important and a pivotal focus point of the regulators when they have looked at clients of mine for spot audits. But the valuation report itself is something that us as auditors need to get comfortable with. And that there's a lot of gray out there in the standard saying how much or how little work we should be doing as professionals. But you know, the simple way to understand it is you need to be able to understand the assumptions that are being used and that valuation report and the models that have been used, and also need to agree that the financial data used within them is accurate. So if it's an eSOP that we do the corporate audit and we do the plan audit, it's it's pretty easy because we already know those numbers because we know the company well. We're with multiple touch points. But if it's a plan audit only, Client, you know, we need to probably do a little bit more digging to understand, you know, how the company, you know, what their profitability was for the year and the kind of the story behind the numbers. So there's a number of different things that we need to do with that valuation report to get comfortable.

SPEAKER_00 22:15

And I imagine with that too, I'm sorry to interrupt you, but are you working with if you have questions on the assumptions or if you're challenging assumptions to the valuation report? Is that something you're working directly with the valuation firm on?

SPEAKER_01 22:28

Yeah, that's a good point or a good question. So we have a resident in-house ESOP valuation expert at the firm, which is always kind of my number one resource to go to first, just to because I'm not a valuation expert by trade. I'm an auditor, still understand the models and such, but I go to him first just to say, hey, does this seem reasonable? And if it does, then it's a lot easier. If it's not, then typically it'll warrant additional questions to, you know, usually to the valuation team that issued the report for for the company.

unknown 22:57

Right.

SPEAKER_01 22:58

Yeah. And then another pivotal thing that we do audit, and this isn't as much of a thing for newer eSOPs, but as the ESOP is mature, distributions are going to be issued out of the ESOP itself. So making sure that we're testing that the benefit that was actually distributed was correct so that the share, the shares in essence were valued appropriately. And then also if the plan has vesting in place, making sure that the participant ended up receiving a check at the right dollar amount based on their years of service and hours worked while they were with the company. That's also key.

SPEAKER_00 23:36

Great. Yeah. Lots of different areas to address there. How long would you say an a typical EBP audit takes? And with assuming that we're filing at at the deadline and not on extension, when should companies start making sure they're engaged with a CPA and ready to start the process?

SPEAKER_01 24:00

Yeah, I'd say that's a little bit of a trick question, but and it depends. Um but I'd say for myself, because I'm, you know, the the quote unquote Arissa ASOP nerd at the firm here, um, I send out engagement letters and request lists to my client like in January, but I'm probably a little aggressive and too much of a planner. But I like to have that request list out early so that when payroll is being closed for the year and such, that those documents that we need, they can just be uploaded to our site at the same time. Really, you know, most people start thinking about the eSop audits once uh the valuation report has been finalized. So, you know, for a lot of companies, that could be as early as April, it could be, you know, as late as midsummer, just just depends. And then the key question once the valuation report is done is really to the TPA and how much time do they need to get the reporting package done? Because certainly there's things that we can do in the background to get a jump start on the audit process, which is why you know I kind of send the request list out early. But really, the audit, most of the audit can't be completed until you know the TPA has done their work and we have participant statements to work through. So when we get that audit, you know, we call it an audit package from the from the record keeper from the TPA, it usually will take us a couple weeks to get through it. You know, I would say usually four weeks. If it's a newer, newer plan audit, so it's the first year the ESOP needs an audit, it might take longer, but typically it's about a month or so, is what I would plan for. The only problem that you face is the closer that you get to October 15th, you know, there's a lot of compression in the lab, really after Labor Day is kind of what I say. There's a lot of compression in the audit world and the in the record keeping world as well. So it may extend the timeline a little bit just because there's a lot of volume happening in that last month and a half. Um it's prudent to once you have that valuation report done, get the TPA, whatever you need, so that they can get to work.

SPEAKER_00 26:04

Yeah. I think a lot of what you said goes just kind of goes back to how how many people are involved and how it's really important for the plan sponsor, the company to understand how everyone works together, who needs what from each other in order so that you're not at a point where you're ready to do something, but then the TPA says, no, I don't have this yet. And so it's just having that an understanding of how everyone works together, I think, is is really important so that you're not getting pushed right up against those deadlines. And speaking of, in a worse, worst case scenario, if you are late in meeting those deadlines, what kind of penalties can companies expect?

SPEAKER_01 26:46

Yeah, so it's the number changes every year based on you know CPI, you know, but the IRS and the DOL both can impose, can impose penalty late filing penalties. And I believe the last year's number, you know, collectively, it was about $3,900 a day. And I did say almost $4,000 per day, which is astronomical, even if you're a week late. What I will say, and I'm not an attorney, I mean I'm not giving legal advice right now, but typically there are workarounds, which I've I've heard from multiple, you know, uh legal professionals that deal with e-sops and late 5,500 filings, where, you know, one, if you get a notice and say, hey, I you owe X amount of $1,000 to IRS or the DOL, they usually are willing to cooperate if you show a good faith effort to correct it. I mean, maybe with reduced fees. And then there's also potential workarounds with asking for a few extra weeks of grace period through an attachment to to filing your your $5,500 on the day that it's due. So there are options. So if you find out a week before the deadline that you need one, obviously it still needs to get done ASAP, but there are remedies to to working around that if for some reason it falls through the cracks. But it is costly.

SPEAKER_00 28:05

Yes. Yeah, it sounds like it. So let's just hope no one ends up in that boat. But it's nice to know there there are some options there. So aside from the actual EVP audit, you you mentioned a couple times how there are Department of Labor audits that that can happen. This is a whole nother layer. Once your audit is done, once once everything's completed, the Department of Labor can come in and request to audit it as well. So maybe highlight just what in what that looks like. Maybe what is it sometimes completely random? Are there certain things that can be that are flagged that are more likely to lead to a DOL audit? What can companies kind of think about relative to that?

SPEAKER_01 28:57

Yeah, so you know, like I mentioned earlier on, these are highly regulated audits. And, you know, the IRS and the DOL both care about, you know, the the ESOPs itself and the filing requirements. So, you know, certainly they can do spot spot audits just randomly. So if you're a you know, kind of a gold standard ESOP where you do everything, you're early, you never miss a deadline, there's no compliance issues that have been flagged in audits or internally by uh the by the fiduciary team, you still could be subject to an audit. I've had a number of clients have that happen over my 15 years or so um, you know, doing these audits. But really, the biggest component comes down to, you know, on the tax return, the 5,500 that's sent to the IRS, there's a certain number of data points on that tax return. And there are yes-no answers. And some of those yes-no answers, depending on how they're answered, could could cause a red flag with the regulators as they go through and bifurcate the data. So if they see, for example, that you know, a tax return was filed late, that return's probably going to get put into a different bucket, you know, in the regulator's kind of queue or in their database. And I've found, although I don't know their their you know, their strategy to a T, I would assume, based on experience, that those plans that typically don't file on time or have answers on the tax return that say, no, we did not do this when we should have done it, those are ones that are at higher risk of being subject to an audit. I will also say that when an ESOP transaction occurs, there's obviously a lot that happens and goes into it, especially with legal entity name changes, EIN name changes. And it's easy to get that mixed up. I mean, even the providers at times make honest mistakes. You know, I've seen names or EINs or even just a comma in a company's name, flag, you know, a notice, which maybe then will turn into an examination. So it just goes to being, you know, being prudent, pay attention to details, ask questions of the service providers. You know, certainly too, the DOL, they act on behalf of the employees' best interests. So certainly, you know, with an ESOP, and I'm sure, you know, as mentioned in many other cultural kind of based podcasts that you've done, McKenzie, like making sure that you have that ESOP culture in place to make sure that the employees kind of understand what this ESOP is, that would help get ahead of any, not that there would be complaints about a free benefit, so to speak, that these employees are now getting through the ESOP, but the last thing you'd want is like, hey, okay, my we had participants state go uh participant statements go out on June 30th, the past five years, and something happened where they didn't go out until September 30th, you know, year six. And then somebody complains and says, hey, where is my statement? I mean, you want to stay ahead of that, be open and honest with the employees. You don't want the employee complaints coming through because the the DOL cares about that. But if you're operating in your, you know, in a prudent fiduciary lane and you're doing everything, you know, in line with the requirements that your service professional team is has, you know, kind of educated you. And if you're, as the plan sponsor, going to conferences and things and you're gaining education that way too, you're usually going to be fine. It's really those that aren't meeting the filing requirements and and have you know non-compliance in some shape or form that are really the ones that are most likely to be subject to those examinations.

SPEAKER_00 32:39

Yeah, that makes sense. And just out of curiosity, is there like so you file this plan year, then the then the DOL is looking at whoever they're gonna audit for that year. Is they can they go back and audit like a couple years prior, or is it always kind of just looking at is it just once a year? Does that make sense?

SPEAKER_01 32:59

Yeah, they they can use their discretion. You know, I've had it, it kind of just depends, but I've had it before where the the audit notice was, hey, we want to go and look at the most recent year that was done. So they'll look there. And then I've seen it where the notice was for like six years where there were a lot of things going on with a particular client. And then I've also seen it too, where they audited one year and they picked the worst possible year to audit because there was a lot of stuff that happened, maybe some with within the control of the company, some you know, not. And they found issues and they decided to expand scope. So they can do that as well. It kind of just depends. Yeah. But I think when that happens, just soliciting the help of the service providers, probably first the ERISA council, and then if if the auditors need to get involved, if it's something they've looked at before, certainly, you know, we get phone calls on that too periodically to help.

SPEAKER_00 33:54

Yeah. Yeah. I think as you mentioned, for for those companies and plan sponsors that are attending conferences and you know, staying on top of everything they need to be, they should in theory be fine from this perspective. So I think the last discussion point I want to just touch on, which I know we've kind of it's kind of been weaved in and in and out of our conversation so far. And you did just mention something as a part of it about that employee, like the culture and the communication piece. What are just overall best practices and advice that you could give to companies not just specific to the EVP audit, but for the entire planning and just staying on top of the year-round process and maybe anything else you want to touch on that we haven't already covered?

SPEAKER_01 34:41

Yeah. You know, I I love committees. You know, I know, you know, if you go to different conferences and you listen to different, you know, practice management tips and tricks, you know, some of the more sophisticated, mature e-sops probably talk about we have, you know, five or six different committees of different types. And depending on how big your company is, that may or may not make sense. But your key stakeholders in the ESOP process for making sure that the ESOP's administered correctly on an annual basis. And that's gonna be a combination of your C-suite management team, your accounting team, and then probably your HR team, maybe some other professionals. It's gonna be key to make sure that you have periodic meetings, maybe it's quarterly, you know, or five, six times a year, to talk about that key fiduciary calendar and what their role is in that. And it could even be if you have a highly, you know, like a blue-collar workforce, it could be a general format in that too, is it on those meetings to help kind of filter some of the participants' comments to, you know, what does this statement mean? Or, you know, again, if the timing got messed up and they have questions on that, I think that's helpful. But having committees to structure it, obviously, someone at the company needs to lay the groundwork and say, what does the calendar need to be and what are the goals of the company? But I think really formalizing it, and it also gives like the employees some ownership. So if you have your, you know, somebody from your accounting team, somebody from HR, give them a role. They can be the lead of the finance committee related to the East or the Culture Committee and let them go to a conference or two, you know, every year to kind of get educated. And honestly, more than even just talking to service professionals like us, also talking to other eSop companies who have, you know, lived, breathed it, and been through it, you know, maybe longer than they have, just to hear different ideas. I I think that's something that I can't encourage enough. And and as I talk to different people at conferences, I always seem to learn something new every time that I go, even though I've gone for a while. So true. Um yeah. So I would encourage, you know, formalizing committees. I'm a big advocate for share price reveal, you know, making that a big deal with the company, and especially in those early stages to kind of get people invested into what an ESOP is and what it means, you know, getting people together to the extent that you can based on the, you know, the composition of the company and the workforce, just to kind of get them amped up and excited. And because obviously the share price is lower in the first couple of years, and then it grows, hopefully, just to get people on board with the concept and let them see the dollar impact to themselves over time. I think that's pretty cool. Can't stress enough again about planning ahead. You know, I think that's that's critical. And it really all all starts with that year-end planning. So, you know, whoever your corporate auditor is, making sure that they're ready to go and they can get your year-on books closed, so to speak, so that the valuation team can get going. I try on most of my uh client engagements to schedule a phone, like an all-hands-on-deck phone call towards the end of the year just to make sure we get on everybody's calendars and kind of set that timeline and make sure the whole team understands the timeline. Rather it just kind of being a, hey, we're done. Let's kick it to the next person in the list. So I don't think enough people do that. But I know from you know, my perspective as a service provider in my own lane, I I appreciate it when people share, you know, expectations and deadlines, you know, with with me, if it's a preference and not just a statutory deadline. So I I think those are all helpful, you know, from a and not all people really do that. I think they learn from bad lessons, but I think it's important to establish those good habits up front.

SPEAKER_00 38:31

Yeah, no, I think those are all really awesome. And and of course, it's especially in the early years, something's gonna slip, something's gonna happen, and not everything's gonna be perfect. You can, you know, prepare as best as you can. And we that's our goal here as part of our podcast today, is to help you plan for that. But of course, if something happens, worst case you learn from it and you're better in the next year. I think what you mentioned about going to conferences is huge for not even just like expanding that opportunity to more than just your, you know, CFO and whoever the CEO is. Maybe you're you're expanding it to other committee members that or or HR personnel, you know, just so that others are getting exposed to the learning and it's as you mentioned, there's something always there's something always new to learn about esops, or maybe you heard it once and you haven't heard it enough. And so just to get it drilled in is I think really awesome. So yeah.

SPEAKER_01 39:29

Yeah. And there's there's not, I mean, a lot of people are like, I've heard before, hey, I don't want to send 10 people to this national conference. We got to pay for flights and it's expensive. But know that there's a lot of local options available. You know, I know if you're in Florida and I'm in Michigan, and I know both of our states have strong state chapters that offer at least an annual conference, if not more, that are definitely like low cost, very affordable options. You know, so there are options out there. So I just, you know, recommend East Top companies ask their professionals if there's something out there that, you know, that they're interested if they're interested in doing that for their employees.

SPEAKER_00 40:06

Right. And not to mention all of like the webinars that you can attend online or podcasts like ours that you can listen to and on the road and you're not you're not spending money to to listen to it. So awesome. Thank you so much, David, for your time today. I've I think this has been a really good conversation and very helpful information. I'm really excited for our listeners to hear this because I don't think we've really dove into this topic in like we have today in the past, or if we have, it's been a really long time. So, and as we mentioned, it's it's that time of year, so it's very relevant. And I think this will be super helpful. So thanks for joining me today. Really appreciate it. And for our listeners, if you liked our episode, please feel free to subscribe, like, share with a friend, and as always, feel free to interact with us at journey to anesop.com. So thank you, David.

SPEAKER_01 41:01

Thank you.