What Is a 401(k) Audit?
A 401(k) audit is an examination of a company’s 401(k) plan to verify its financial statements, compliance with regulations, and adherence to plan provisions. The goal is to ensure that the plan operates fairly and transparently, protecting employees’ retirement savings.
Who is required to undergo a 401(k) Audit?
Under the previous guidance, an employee benefit plan was normally required to undergo an audit if it had at least 100 eligible plan participants at the beginning of the plan year. Starting with plan years beginning on or after Jan. 1, 2023, only those participants with an account balance at the beginning of the plan year count toward the 100-participant threshold.
Why Are 401(k) Audits Necessary?
The Employee Retirement Income Security Act (ERISA) mandates audits for larger plans.
Due to the importance of safeguarding participants’ assets and ensuring plan accuracy.
Who Conducts 401(k) Audits?
Certified public accountants (CPAs) or audit firms perform these audits.
Audit Process:
Planning Phase:
Gathering necessary documents (plan documents, financial statements, participant data).
Understanding the plan’s operations and internal controls.
Fieldwork Phase:
Testing transactions, contributions, distributions, and investments.
Verifying participant data.
Reporting Phase:
Issuing an audit report with findings and recommendations.
Discussing any compliance issues.
Common Audit Findings:
Late remittance of employee contributions.
Inaccurate participant data.
Non-compliance with plan provisions.
Weak internal controls.
Corrective Actions:
If issues are identified, the plan sponsor must take corrective measures.
Implementing stronger controls, correcting errors, and communicating with participants.
Benefits of a Clean Audit:
Boosts confidence among plan participants.
Demonstrates fiduciary responsibility.
Avoids penalties and potential plan disqualification.
Conclusion:
401(k) audits play a crucial role in maintaining the integrity of retirement plans. As a plan sponsor or administrator, understanding the process and staying compliant ensures a smoother experience for both employers and employees.
Remember to consult with a professional or legal advisor for specific guidance related to your company’s 401(k) plan. Feel free to call EC Barrett, LLC for a free consultation.
And remember, retirement planning isn’t just about numbers—it’s about securing dreams and future hammock time. 🌴🌟