Offering a 401(k) plan helps create an attractive benefits package for keeping employees long term. Most employers with over 100 employees participating in the retirement plan will need to complete a 401(k) audit. As the owner of the company or plan administrator, preparing for the audit is crucial for a successful process.
Tips for a Successfully Completing a 401(k) Audit
A retirement plan audit can be a stressful time for company owners, record keepers, office managers, and employees. Implementing strict company procedures and following basic tips for completing a successful 401(k) audit will help ease the tension of the experience.
Keep Accurate Records
Preparing for a 401(k) audit should be an ongoing process throughout the fiscal year. Keep accurate records of all your employees. Know the types of documents your company needs for each full-time employee, part-time employee, apprenticeship participant, or temporary employee.
Keeping an accurate file for each employee reduces the chance of misinformation. Long-term employees may have lengthy files. Develop and place an outline or cover page for ease of viewing.
- Update contact information for all employees
- Record any changes in employment status including compensation increases, termination, or retirement dates
- Name changes due to marriage or divorce proceedings
- Plan participant details for each employee including loans, if applicable
- Records of employees who opt out or terminate being part of the plan
- Changes to the plan at employee’s request
- Preview documents with needed employee signatures
- Payroll journals with employee compensation and withholdings matching the 401(k) contributions
Contact an Independent CPA Firm
An independent accounting firm must perform the 401(k) audit. Your accountant or accounting firm is not eligible. Finding the right firm is crucial. An experienced firm will provide dates, guides, checklists, and other materials to help you with the auditing process. Ask your current accounting firm for recommendations.
Being prepared is a must. A late audit report may result in severe fines and penalties for your business. Alert your bookkeeper or office manager of the upcoming audit as soon as possible. An auditor may spend one day or a week reviewing your accounting practices to ensure compliance. Notification allows your staff to gather the necessary documents, amendments or other plan changes for a faster audit review.
Ask for the Checklist
Requesting a checklist from the auditor, accounting firm or the IRS helps in the preparation process. The checklist is generally part of the audit request letter. Using the checklist allows you to prepare needed documents or dismiss any non-applicable information.
Review Your 401(k) Plan
Go over your plan details including any amendments to ensure you are operating the 401(k) within the policy guidelines. Provide documentation of the original plan and any changes.
If you hold regular meetings to discuss any of the 401(k) investments, expenses or plan changes, keep minutes. Detail the topic of discussion, reasons for concern, and steps for addressing the issue. Document the names of employees or advisory board members participating in the meeting.
Being prepared for a 401(k) audit ensures successful completion. By starting to gather documents early, you will be able to find and address any errors. Fixing the errors prior to the audit helps contribute to a successful experience. The experienced CPAs at Ernst Wintter & Associates can help your organization through the audit process and ensure you are better prepared next year. Contact us today to schedule an appointment!