401k Audits

Life is full of surprises that often are greeted with a smile and make people feel excitement and exhilaration. Surprise parties, an end-of-year bonus or a thoughtful gift can elicit this reaction. However, there are also unwelcome surprises that are approached with anxiety, frustration, and stress about how to manage through them. Examples include a medical issue, unexpected educational or other expense or even a transitional life event such as buying a home.

The rules and regulations surrounding the administration of 401(k) and other retirement plans can often be complex and confusing. Plan administrators need to ensure they are following the framework outlined in the plan documents while adhering to the broader regulations required by the IRS and Department of Labor (DOL). A key consideration many growing plans need to carefully consider is when they are required to receive an independent audit of the plan’s financial statements, also known as a benefit plan audit.

As a company grows there are many challenges and opportunities that can present themselves. These may appear as the opportunity arises to expand operations, open a new location or begin offering an additional product or service to a captivated market segment. At the same time, there may be regulations to meet new compliance requirements such as a financial statement audit to satisfy a bank or new creditors. For those with a 401(k) or other plan such as a 457, 403b, there is the need to have an annual audit. This can be somewhat confusing for companies new to the process because there are specific rules dictating when a plan audit is required. In fact, we are often asked, do I need a 401(k) audit?

Companies that offer a retirement plan including defined benefit and contribution plans may be required by the Employment Retirement Income Security Act (ERISA) to perform an annual audit of the plan. While small plans are exempt from this requirement, generally speaking, plans with over 120 total participants throughout the year are required to have an audit completed.

The first time a benefit plan (401k, 403b, pension, etc.) is required to have a benefit plan audit can be challenging and stressful. Generally speaking, once the plan has over 120 eligible participants at the beginning of the plan year, the IRS and Department of Labor (DOL) require that a plan audit is completed by an independent accounting firm.

Managing a company’s 401(k) or other retirement plan audit can be a challenging task. Ask anyone who is responsible for working with the audit firm and they will tell you it can be time consuming to meet the multiple and ongoing requests made throughout the process.

Many companies offer a retirement savings program as a benefit for existing employees and as an incentive to prospective employees. While these plans have become the standard for most companies, 401(k), 403(b) and pension plans can be difficult to manage.

Offering an employee benefit plan (EBP) is a wonderful benefit for employees, but it comes with some responsibility. For plan sponsors that have at least 100 employees eligible to participate (whether all participate or not), an audit must be performed annually by an independent CPA firm.

Retirement plans are an important benefit for employers to offer as part of an incentive package to employees. Many companies offer such plans because they provide an important method for employees to save for retirement tax deferred.