MERS of Michigan needed to provide additional audit evidence for participating municipalities to rely on accuracy of net pension liability reporting under new GASB 68 standard. Completing a SOC 1 Type 2 audit of internal controls for its defined benefit pension plan system would provide necessary assurance and be more cost effective than individual opinions. Plante Moran performed a readiness assessment and identified control gaps, then examined the system from January to December 2014, issuing the report in February 2015. This allowed municipalities to have timely audit evidence for GASB 68 compliance at a cost savings of over $2 million total for MERS customers.

1. SOC 1 Type 2 audit completed in condensed
timeframe upholds confidence for all audit needs.
The client
MERS of Michigan (Municipal Employees’ Retirement System) is an agent multiple-employer
defined benefit pension plan that serves Michigan municipalities and their employees. MERS
administers nearly 2,400 plans represented by more than 700 Michigan municipal members
with a combined value of more than $9 billion. MERS serves more than 100,000 participants.
{A case study.}
The challenge
The solution
During the 2014 calendar year, MERS had to prepare for its employers pending required
implementation of GASB 68. While GASB 68 didn’t directly impact MERS, MERS needed
to work closely with the participating municipalities to provide all of the information
required to comply with this new accounting standard. MERS understood that only
providing its fiscal 2014 audited financial statements to its members wouldn’t provide the
municipalities with sufficient audit evidence. It was critical, therefore, that MERS provide
timely additional audit information in order for the participating municipalities to be able
to rely on the accuracy of the net pension liability they were recording under GASB 68.
Absent this additional audit evidence, the participating employers would be facing
modified audit opinions.
MERS was faced with two choices:
1. Complete and issue a SOC 1 Type 2 audit of its internal controls by February 2015
(the most cost-effective method) along with a separate opinion on the Schedule of
Changes in Net Position by Employer as a whole, or
2. Issue a direct opinion on each employer’s Schedule of Changes in Net Position; this
would be a much more costly alternative.
After several discussions with Plante Moran, MERS decided to proactively complete a
SOC 1 Type 2 audit of the controls surrounding its defined benefit pension plan system
in order for the participating municipalities and their auditors to be able to rely on the
GASB 68 information provided by MERS and its actuaries. The audit report would identify
the controls in place and report on the design and effectiveness of controls to provide
reasonable assurance that contributions, net investment income, and benefit payments as
reported by the organization are accurate.
In order to complete the SOC 1 audit by December 31, 2014, Plante Moran’s engagement
team performed a readiness assessment within a condensed time frame. This process
resulted in the documentation of descriptions of the MERS defined benefit pension
plan system. Once the system that was to be audited was documented, Plante Moran
identified the controls within that system and identified any gaps for MERS to remediate.

2. {A case study.}
Plante Moran and MERS worked jointly toward ensuring that all MERS participating municipalities
would receive the additional audit evidence the SOC 1 needed under GASB 68 on a timely
basis and in the most cost-effective manner. By being on the cutting edge of this issue, our joint
initiatives saved MERS a significant amount of time and staff resources at about one-quarter of
the cost of the alternative solution. MERS estimates that, overall, is was able to save its customers
over $2 million in additional implementation costs for GASB 68. Plante Moran was able to
support MERS with an additional audit to help manage a reporting change, GASB 68. Plante
Moran’s ability to perform specialty audits, such as the SOC 1, allows clients like MERS to enjoy
the confidence and continuity of the same vendor for all their audit needs.
The benefit
Sarah Pavelek
sarah.pavelek@plantemoran.com
877.622.2257 x33891
Alexis Kennedy
alexis.kennedy@plantemoran.com
877.622.2257 x33618
Contact
Then, within a very short turnaround, Plante Moran performed a SOC 1 Type II examination covering
the period January 1, 2014, through December 31, 2014, that was issued in February 2015. Plante
Moran was able to draw upon its deep bench of government experts to assemble a team of
specialists that was able to successfully complete the examination within the aggressive deadline.