Investment Earnings & Valuation Testing
Calculate plan-level and participant-level returns on average balance per fund and compare them to surface misallocations, calculation errors, or unauthorized transactions.
Calculates fund-level and participant-level returns on average balance for each fund and period, and compares them to surface misallocations, calculation errors, or unauthorized transactions.
Purpose
To verify the accuracy and completeness of investment earnings and ending valuations recorded in the plan's accounts by calculating fund-level and participant-level returns on average balance, and comparing individual participant performance to the corresponding plan-level fund return. This supports the valuation assertion and identifies any material differences that may indicate misallocations, calculation errors, or unauthorized transactions.
Procedures
- Record the plan-level beginning and ending balances for each fund under test from the employer fund earnings report. Calculate the average fund balance and plan-level return on average balance for the period.
- Extract the participant-level beginning and ending balances from the participant account statement for the same fund and period. Calculate earnings or loss and the participant's return on average balance.
- Compare the participant's return on average balance to the plan-level fund return for the same fund and period, calculating both the straight percentage point difference and the relative percent difference.
- Evaluate any differences between the participant-level and plan-level returns for reasonableness, considering the potential impact of intra-period contributions, withdrawals, and timing differences. Investigate differences that cannot be explained by participant activity.
How this workflow is structured
This procedure uses two levels of data.
Plan level (your selections) captures the fund's overall performance from the employer fund earnings report: period dates, fund name, starting balance, ending balance, and the auto-calculated average balance and plan-level return on average balance.
Participant level (document) extracts the participant's balances from the participant account statement for the same fund and period and auto-calculates earnings/loss, average balance, return on average balance, straight difference vs. plan return, and percent difference vs. plan return.
Engagement Variables
None. This procedure is selection-driven; the period dates and plan-level fund balances are entered per row under Your selections.
Your selections
| Selection | What to enter | Why it matters |
|---|---|---|
| Period Start Date | The opening date of the reporting period from the employer fund earnings report. | Defines the beginning of the measurement window. Must match the period covered by the participant account statement. |
| Period End Date | The closing date of the reporting period from the employer fund earnings report. | Defines the end of the measurement window. The return calculation and participant statement extraction are both scoped to this period. |
| Fund Name | The fund name exactly as it appears in the employer fund earnings report. | Used to match to the participant statement and to scope participant-level balance extractions to the correct fund. Fund name variations between the employer report and participant statement are a common matching issue. |
| Starting Balance | The plan-level opening balance for this fund at the start of the period, from the employer fund earnings report. | The plan-level starting balance is the basis for calculating the fund's average balance and return on average balance. This drives the benchmark that participant returns are compared against. |
| Ending Balance | The plan-level closing balance for this fund at the end of the period, from the employer fund earnings report. | Combined with the starting balance to calculate the plan-level return. The ending balance supports the valuation assertion that the amount recorded in the plan's records agrees to the fund's reported closing value. |
Documents to provide
| Document | What to provide | Key data extracted |
|---|---|---|
| Participant Account Statement | The participant's account statement from the recordkeeper covering the same period as the employer fund earnings report. Must show beginning and ending balances broken out by fund. | Beginning and ending balances for the selected fund. Agentive calculates earnings/loss, average balance, and return on average balance at the participant level. These are compared directly to the plan-level return to surface any material differences. |
Don't have these exact documents?
Use Co-Audit to change which documents this request asks for, and to adjust the procedures and calculations that read them, so the workflow matches what your client actually provides.
Testing attributes
These attributes describe the calculated outputs the workpaper produces for each fund and period rather than pass or fail agreements.
| Output | What it shows and what to review |
|---|---|
| Plan Return on Average Balance | Calculated as (Ending Balance − Starting Balance) ÷ Average Fund Balance for the period. This is the benchmark: the return experienced by the fund as a whole. Review for reasonableness against known market conditions and the fund's investment mandate. |
| Participant Return on Average Balance | Calculated the same way using the participant's beginning and ending balances from the account statement. A participant who made no contributions or withdrawals during the period should show a return very close to the plan-level return for the same fund. |
| Straight Difference (percentage points) | The arithmetic difference between the participant's return and the plan-level return, expressed in percentage points. A difference of 0.02 means the participant's return was 2 percentage points different from the fund. Review differences above your engagement's threshold (typically 1 to 2 percentage points) for explanation. |
| Percent Difference (relative) | The difference expressed as a percentage of the participant's own return. A small absolute difference can appear large in relative terms for low-return periods. Consider both the straight difference and the relative difference together when evaluating materiality. |
Update with Co-Audit
Real client data rarely matches a template exactly. When the periods or formats of the documents you receive differ, or your firm calculates returns differently from what this template assumes, use Co-Audit to retool the request. Describe what is different and it rewrites the document groups, AI Prompt Columns, and calculations to fit.
Situations where Co-Audit helps with Investment Earnings & Valuation Testing:
- The employer fund earnings report and the participant statement cover different periods (for example, annual versus quarterly), so the return comparison is not valid. Have Co-Audit aggregate the participant balances across the shorter periods before calculating the participant return so both sides cover the same window.
- Your firm uses a different return methodology than simple return on average balance, such as a time-weighted return. Have Co-Audit rebuild both the plan-level and participant-level return calculations to apply that formula.
- The employer fund earnings report is a multi-tab Excel file and the workflow needs a specific tab. Have Co-Audit point the extraction at the correct tab.
- You want a defined difference threshold rather than a manual eyeball. Have Co-Audit add a flag that compares both the straight (percentage-point) and relative differences against your engagement's threshold, so low-balance funds with large relative-but-immaterial differences are not over-flagged.
Describe the difference in the Co-Audit panel
For example: "the employer fund earnings report is annual but the participant statement is quarterly; aggregate the participant balances across four quarters before calculating the participant return."
Let Co-Audit update the workflow
It revises the document groups, AI Prompt Columns, and calculations.
Review every change
Watch the columns for red text (a broken reference) and re-check any cell that involves math, where the AI tends to copy a number forward instead of recalculating.
For broader detail on tailoring requests and fixing broken column links, see Tailor a request with Co-Audit in the EBP hub.
Continue your journey
← Investment Allocation Testing
Confirm allocations against participant elections.
Distribution & Benefit Payment Testing →
Recalculate net distributions and tie gross and tax withheld to Form 1099-R.
How is this guide?
Investment Allocation Testing
Confirm each fund's contribution matches the participant's election within a 1% tolerance and trace fund-level amounts from the payroll journal to the participant statement and trust.
Distribution & Benefit Payment Testing
Recalculate expected net distribution, evaluate accordance with plan documents, and tie the gross amount and tax withheld to Form 1099-R.