What you need to know about 401(k) audit requirements
Your retirement plan audit can be daunting, but it doesn’t have to be. The blend of compliance and financial factors makes these audits complex, but by knowing what to expect and working with a team of experienced professionals, you can stay ahead of the game. The following reviews the basic 401(k) audit requirements so you can get started confidently.
What is a 401(k) audit?
Generally required for plans with more than 100 participants with account balances on the first day of the plan year, employee retirement plan audits are required for “large” plans. They are official inspections to ensure that the plan meets guidelines and regulations set by the Internal Revenue Service (IRS) and the Department of Labor (DOL). Audits must be conducted by an independent accounting firm using Generally Accepted Audit Standards (GAAS). They also need to adhere to DOL and Employee Retirement Income Security Act (ERISA) of 1974 regulations.
An employee pension audit serves two primary purposes:
- to ensure that your plan complies with DOL and IRS regulations, along with the plan-related documents, and
- to determine that the financial information reported on Form 5500 and company financial statements is accurate and in compliance with Generally Accepted Accounting Principles (GAAP).
What does a 401(k) audit involve?
Once you and your third-party administrator (TPA) determine that you need an audit, the next step is to hire a qualified CPA firm like BPM to conduct the audit.
Unlike financial statement audits, much of the audit information will be provided to your audit firm directly from your TPA. It is important to determine whether you are in audit status as soon as possible and provide sufficient time for the audit process in advance of the audit deadline.
Important dates (for calendar year-end plans)
January 31: The date by which your employee census must be submitted to your TPA.
March 15: The date by which your TPA should tell you if you are in audit status.
July 31: Initial deadline to complete the audit and file Form 5500.
October 15: Extended deadline to complete the audit and file Form 5500.
401(k) audit requirements
At a minimum, your auditor will request the following documents:
- Copies of the plan documents, including the Plan’s adoption agreement, basic plan document, summary plan description, IRS opinion letter and investment policy.
- Copy of the Plan’s Form 5500.
- Copy of the Plan’s fidelity insurance bond.
- Retirement plan/Investment committee meeting minutes.
- Employee census report.
- Payroll reports.
- Evidence of documented participant birth and hire dates (such as Form I9s) for selected participants.
- Schedule of remittances made to the retirement plan trust.
- Documentation of internal controls and procedures, including procedures for payroll, eligibility, contributions, distribution and loans.
- Audit package from your third-party administrator.
What a 401(k) audit looks like when you work with BPM
If you’re a first-year client, we’ll begin with a kick-off meeting to walk you through all the steps, so you know what to expect. We will let you know what needs to be provided by the company, the TPA and the investment advisor (if there is one), and we’ll provide you with our proprietary pre-planning checklist so you can get started quickly and easily.
We also provide our clients with information about fiduciary requirements and best practices, assisting with appropriate referrals when needed. Whenever possible, we communicate directly with your TPA, so you can focus on your core business. We make every effort to reassign our staff to the same clients each year to establish continuity.
Furthermore, we pride ourselves on being able to provide sound advice to our clients. BPM’s employee benefit plan audit team consists of dedicated professionals with extensive knowledge of ERISA, DOL and IRS guidelines, along with years of experience. We are proud to have been one of the first firms to join the AICPA’s Employee Benefit Plan Audit Quality Center, a public policy organization dedicated to fostering high-quality performance by public company auditors. performance by public company auditors.
If you are facing a 401(k) audit, contact Ryan Davis, Partner and Employee Benefit Plan Audit Leader, for a consultation on getting started.