When Should My Company or Organization Consider a 401(k) or Retirement Plan Audit?

Offering 401(k) or other defined retirement savings account is often a key factor in attracting employees and talent to a business. However, businesses that offer plans of this type to employees and their families will face certain reporting and compliance obligations. It is important for businesses to comply with all aspects of this obligation because, in the best-case scenario, mistakes and errors in practices surrounding the plan can lead to large fines and penalties. Furthermore, depending on the time of plan and its method of administration, errors and oversights can threaten the viability of the plan.

At the Cook CPA Group, our accountants and other financial professionals are dedicating to providing actionable, on-point guidance regarding 401(k) plans and other financial obligations. Our CPAs can conduct a 401(k) audit for your business which may be required under the law. To schedule a free initial consultation, please call our Roseville, California accounting office today.

What Are the Goals of a 401(k) Audit? How Can an Audit Protect a Company?

As a starting point, some businesses are required by law to conduct an annual 401(k) audit. If your business has what is considered a “large” plan, you will be required to conduct an audit annually. However, there are also goals that go beyond the mere legal requirements for a 401(k) audit. In fact, engaging in regular and routine audits regardless of a requirement can assist a company in identifying oversights and issues early before they develop into a more serious problem. Essentially, and at the core of all audits, individuals holding a fiduciary duty are ensuring that their duties have been satisfied and that the plan remains healthy under their stewardship.

More specifically, some of the particular goals a 401(k) or retirement benefit plan audit can provide include:

• Ensuring that all eligible employees are permitted an opportunity to participate.
• Assessing whether all assets are fairly valued.
• If prohibited transactions have occurred.
• Issues or practices that could impact the plan’s status.
• Determine if contributions are proper and made in a timely fashion.
• Ensure that disbursements or plan benefit payments are proper and timely.
• Determine whether account statements accurately reflect participant financials.

A thorough audit will, at a minimum, ensure that all of the above items have been handled properly. If an audit detects inconsistencies or discrepancies we can provide actionable potential solutions to a business or plan administrator. In any case, if your plan is required to conduct an annual audit, it will be included when you complete and submit Form 5500.

When Is a 401(k) Audit Required?

An annual 401(k) audit is only required for businesses and organizations with 401(k) and defined benefits plans that can be characterized as “large plans.” A large plan is any plan with 100 or more participants. Plans with 100 or more participants must make an annual filing of Form 5500 that includes a completed Section H which reflects the results of an annual plan audit.

How Does One Determine Their Number of Plan Participants?

For defined benefits plans like a 401(k), the relevant period during which one determines the number of plan participants is the first day of the plan year. Speaking generally for 401(k) plans, what constitutes a plan participant is defined in the plan itself. Typical requirements one must satisfy before becoming a participant are a time of service and/or reaching a certain age.  Rules can generally be customized to fit the needs of the plan and organization provided that the rules do not violate any other laws or regulations. One important note is that different rules regarding what constitutes participant will apply to other types of benefits plans.

Can I Avoid an Audit Even If My Plan Has More than 100 Participants?

While it is still recommended that all plans be subjected to regular and routine audits, there are certain scenarios where a large plan that requires an audit can fit into an exception. That is, under the 80/120 Rule, certain businesses that qualified as a small plan in the previous year do not need to file. Businesses with plans that qualified as “small plans” in the previous year that now have greater than 100 participants but not more than 120 participants can continue to qualify as a small plan. The number of participants is calculated on the first day of the plan year. Because a number of factors can impact whether an individual is considered a plan participant, it is wise to work with a CPA or financial professional.

Accountants Provide 401(k) Audit Services in California

If your business or organization offers a 401(k) plan, it is essential to engage in routine compliance efforts to ensure that the plan is healthy and all fiduciary duties are being satisfied. For organizations with large plans, annual 401(k) audits are mandatory. To discuss how the accountants and financial professionals of the Cook CPA Group can address your 401(k) plan audit needs, please contact our Roseville accounting office at 916-432-2218.