Defined benefit (DB) plan audits are getting more complicated, in part due to strong funding levels. According to the 2026 NEPC Corporate Defined Benefit Peer Study and Survey from investment consulting firm NEPC, the aggregate funded ratio among plans in its peer study reached 103% in 2025, up from 101% the year before. These elevated funding levels may give sponsors more opportunities to de-risk through terminations, annuity buy-ins and buy-outs, and other pension strategies. The accompanying NEPC survey found that 41% of surveyed plan sponsors intend to fully terminate their plans over the long term.
How can DB auditors and plan sponsors best navigate what Grant Thornton audit partner Jason Eddy, CPA, calls the “perfect storm” of higher interest rates and strong returns on plan assets? As always, it comes down to understanding the numbers, not just taking them at face value.
That means knowing what to look for and what questions to ask. Ahead of his presentation at the upcoming AICPA® Employee Benefit Plans Accounting, Auditing and Regulatory Online Update, Eddy sat down with us to discuss three areas that deserve particular attention: participant and census data, investments, and benefit payments.
Make the most of the actuarial report and data
If you’re intimidated by actuarial reports, you may be more likely to just accept them without question. That’s a mistake. By familiarizing yourself with reports and learning what assumptions may affect the plan’s obligations, you won’t have to rely exclusively on the actuary.
Knowing what questions to ask is important. What are the key inputs? The census data, mortality assumptions, interest rates, and return on assets.
Reliable census data is particularly important. Participants’ dates of birth and dates of hire can be important inputs to the actuarial valuation, so inaccuracies or missing information can materially affect the plan’s obligation. For additional context, see the AICPA’s Actuarial Methods in Defined Benefit Pension Plans Primer. Understanding what census attributes will affect the valuation will enable you to focus your testing accordingly. Eddy thinks emerging technology has the potential to make such data analysis much more focused and efficient. Instead of the traditional sampling approach, where 25 participants might stand in for hundreds or even thousands, data analytics tools can examine larger populations and targeted subsets.
Take a closer look at investments
DB plans may hold a wide range of investments, from private equity and hedge funds to insurance contracts and derivatives.
“Investments are an important part of the audit,” Eddy noted, “especially if you’re doing a non-Section 103(a)(3)(C) audit. And we’re continuing to see more complicated, harder-to-value assets in pension plans.”
These assets add complexity to valuation and financial reporting. You need to understand not only what the plan owes, but also how its investments are valued and presented in the financial statements. De-risking adds an additional layer. With an annuity buy-in, for example, the contract remains an asset of the plan and needs to be valued. You may also need to evaluate the use of net asset value (NAV) as a practical expedient and how other investments are classified within the fair value hierarchy.
Materiality deserves consideration, too. An investment such as a derivative may not be quantitatively material to the financial statements but can still carry qualitative disclosure implications.
With all that in mind, don’t look at the investment portfolio as a single audit area. You need to consider the characteristics of each investment, how it’s valued, and what the implications are for financial reporting and auditing.
Start benefit-payment testing with the plan document
There are a lot of different ways to slice the data, so your first step needs to be coming up with a testing strategy tailored to the plan document. As Eddy observed, “Understanding the various aspects of how the plan is supposed to operate drives how you audit the plan — because you’re making sure the plan’s functioning in accordance with the provisions.”
Once you understand those provisions, you can separate benefit payments into three populations: those who started receiving annuity payments during the current year, those who have been receiving them for years, and those receiving lump-sum distributions.
Each group raises different audit considerations, so looking at them separately helps you decide where to focus testing instead of taking the same approach across the board. Don’t stop at recalculating a benefit, either. As Eddy pointed out, there are a host of considerations: “Not just, ‘Are the calculations correct?’ But was the person eligible to receive a benefit payment? Did they actually receive it?” The complexity of the benefit calculation can also determine whether actuarial assistance is needed. The goal is to understand not just the numbers, but also the circumstances behind them.
Dive even deeper into DB plans this December
While each of these three areas has its own complexities and considerations, they all speak to the importance of looking beyond the numbers themselves. Understanding the data and assumptions behind the actuarial report, the characteristics of the plan’s investments, and the provisions governing benefit payments can help you identify potential risks and where additional scrutiny may be warranted.
Explore these issues and more December 2–3 at the 2026 AICPA EBP Accounting, Auditing and Regulatory Online Update. Eddy will cohost a session on advanced DB topics with Tristan Christ, U.S. Retirement Resource Actuary at Willis Towers Watson. You will gain a deeper understanding of how these plans work and the risks to watch for, with audit and actuarial perspectives from two experts in the field. The two-day live online event offers 10 CPE credits, so save your virtual seat today. Find more resources on the AICPA’s Defined Benefit Pension Plans Resource Center.
About the expert
Jason Eddy, Partner, CPA, Grant Thornton LLP, has over 20 years of experience leading large employee benefit plan engagement teams. As the Practice Leader for Grant Thornton's National Employee Benefit Plan Practice, he is responsible for providing services to some of Grant Thornton's most complex employee benefit plan engagements across the U.S. Eddy has extensive experience in dealing with reporting and disclosure issues related to benefit plans and serves as a technical resource for his firm on employee benefit plan auditing, accounting, and reporting issues. Eddy is also responsible for delivering training to audit team members to support the overall National Employee Benefit Plan Practice. He is actively involved with the ongoing process of updating Grant Thornton's employee benefit plan audit methodology, innovation tools, and practice aids, and serves as a program leader and developer for the firm's nationally developed employee benefit plan training programs.