Audit fees for a 401k vary from firm to firm and are generally based on the size of the plan and the level of assistance the auditor receives from the plan administrator. Generally, the more work the auditor performs, the higher the audit fee. As a plan administrator, you can manage the size of your plan to some extent and you have complete control of how much assistance you provide the auditor.
Size of Plan
Did you know that terminated employees who are still in your plan cost you extra fees? Much of the audit work is completed based on the participant counts, which include eligible current employees and terminated employees with account balances. Most plans have guidelines for automatic distributions to terminated employees with small balances. Work with your third party administrator or ERISA attorney to ensure you are making the most cost effective decision for your plan.
Level of Assistance
As a plan administrator much of the audit fee is in your control. The more you do, the less your auditor has to do. The less work your auditor does, the less you pay!
Your auditor should send you a detailed list called a “Client Assistance Request List” or “PBC List” (PBC = Prepared By Client). This should represent the majority of information your auditor will need to complete the audit. As a result, this document is your guide to minimizing fees. Here’s how:
Gather all the information on the list and provide it to your auditor all at once. Most auditors have several clients they are working on simultaneously, the fewer times they have to put down and pick-up your file the less time will be spent on.
If you have questions about something on the PBC List, ask your auditor. Each item on the PBC list has a purpose and providing the wrong thing to the auditor adds time. Similarly, not providing anything causes additional work for the auditor too. Answer no or indicate why you haven’t provided a requested item.
Eliminate the excess. An auditor’s job is to investigate and inquire. If we are given extra paperwork or unrequested documentation, we expect that you have provided it to us for a reason. We will likely review it and ask you why it was provided. Further, most 401k auditors will request documents from the employees’ personnel files. Rather than pulling the entire employee files and handing them to the auditor, flag the specific documents requested or pull them and provide only what has been requested. And if you don’t understand what the auditor is looking for, ask.
Questions from the auditor are inevitable; regardless of how prepared you are as a plan administrator. To minimize fees, respond to the auditor as quickly as possible. They may inquire regarding unusual transactions or may be waiting to hear back regarding the approval of the draft financial statements; the less time the auditor waits the less downtime for your plan and the fewer the excess fees.
A management letter is the plan administrator’s guide to fewer future audit fees. Auditors use the management letter as a tool to advise management as to errors and inefficiencies noted during the audit. Often they include a recommendation for how to prevent the errors or improve the processes going forward. Implementing recommendations from management letters will make for better administration of the plan and as a result, fewer fees.
If you are concerned about your audit fee, talk to your auditor. In addition to recommending the tips I have listed above, they will be able to specifically tell you how your plan can reduce fees.