401(k) audit requirements: Everything you need to know
What you need to know about 401(k) audit requirements
A 401(k) plan audit can seem overwhelming, but proper preparation simplifies the process. These audits involve both compliance and financial aspects, making them complex. However, understanding key requirements and partnering with experienced professionals can ensure a smooth experience. Below is an overview of essential 401(k) audit requirements to help you stay compliant and confidently navigate the process.
What is a 401(k) audit?
Employee retirement plan audits are typically required for “large” 401(k) plans with more than 100 participants who have account balances on the first day of the plan year. These audits, conducted by independent accounting firms, ensure that the plan adheres to guidelines and regulations set by the Internal Revenue Service (IRS) and the Department of Labor (DOL), while also complying with the Employee Retirement Income Security Act (ERISA) of 1974.
The two primary purposes of an employee pension audit are:
- Compliance Assurance: To verify that your plan complies with DOL and IRS regulations, as well as the plan’s governing documents.
- Financial Accuracy: To ensure that the financial information reported on Form 5500 and company financial statements is accurate and in line with Generally Accepted Accounting Principles (GAAP).
What does a 401(k) audit involve?
Once you and your third-party administrator (TPA) have determined that an audit is necessary, the next step is to hire a qualified CPA firm, such as BPM, to perform the audit.
Unlike financial statement audits, the majority of the audit information will be provided by your TPA. It is crucial to identify your audit status early and allocate enough time for the audit process to be completed before the filing deadline.
Here are the key dates for calendar year-end plans:
- January 31: Employee census must be submitted to your TPA.
- March 15: Your TPA should inform you whether you are in audit status.
- July 31: Initial deadline to complete the audit and file Form 5500.
- October 15: Extended deadline for completing the audit and filing Form 5500.
401(k) audit requirements
At a minimum, your auditor will request the following documents for the audit process:
- Copies of Plan Documents: Includes the Plan’s adoption agreement, essential plan document, summary plan description, IRS opinion letter, and investment policy.
- Copy of Form 5500: The Plan’s Form 5500 filing for the relevant year.
- Fidelity Insurance Bond: A copy of the Plan’s fidelity insurance bond.
- Retirement Plan/Investment Committee Meeting Minutes: Documentation of meetings related to the plan’s investment decisions.
- Employee Census Report: A report that includes participant data.
- Payroll Reports: Information on payroll, including compensation and hours worked.
- Evidence of Participant Information: For selected participants, proof of documented birth and hire dates (e.g., Form I9s).
- Schedule of Remittances: A report detailing the remittances made to the retirement plan trust.
- Internal Controls Documentation: Procedures for payroll, eligibility, contributions, distributions, and loans.
- Audit Package from TPA: The audit package provided by your third-party administrator.
Being prepared with these documents will streamline the audit process and help ensure that your plan remains compliant.
What a 401(k) audit looks like when you work with us
If you’re a first-year client, we start with a comprehensive kick-off meeting to guide you through every step of the process, ensuring you know exactly what to expect. We’ll outline what needs to be provided by the company, the TPA, and the investment advisor (if applicable), and provide you with our proprietary pre-planning checklist to help you get started quickly and easily.
Our services also extend to offering advice on fiduciary responsibilities and best practices. When necessary, we make appropriate referrals and maintain direct communication with your TPA, allowing you to focus on your core business activities. To ensure continuity, we aim to assign the same staff to your account each year.
At BPM, we are committed to providing expert advice. Our employee benefit plan audit team is made up of seasoned professionals with deep knowledge of ERISA, DOL, and IRS regulations. We were also one of the first firms to join the AICPA’s Employee Benefit Plan Audit Quality Center, demonstrating our dedication to high-quality audit performance.
If you’re facing a 401(k) audit, contact us for a consultation on getting started. We’re here to help you navigate the process with ease and confidence.
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