Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Preparing for your 401(K) audit

401(K) audit, audit, financial reporting, financial statementsProper preparation for your year-end 401(K) audit can lead to a much smoother and effective audit experience for both your company and your auditor. A constant line of communication leading into the audit will allow both parties to be as efficient as possible, especially when it comes to performing fieldwork. In addition to what your company can do leading into the fieldwork phase, there are many things that can be done throughout the plan year to ease the process of a 401(K) audit.

After the plan year and leading into the audit your company should review census information for completeness and cross-check the census with your Third Party Administrator (TPA) for accuracy. You should also review plan activity including contributions, distributions and 401(K) loans to ensure that everything is acting in accordance with your company’s Plan Document. In addition, it is recommended that compensation be reviewed to ensure the proper compensation codes are included in calculating employee deferrals. This includes reviewing any compensation from non-standard or manual paychecks issued during the year for proper 401(K) deferral treatment. This is one of the most common errors discovered in 401(K) audits.

Throughout the plan year, it is important to document and maintain meeting minutes with your company’s board and third party advisors, as well as document any decisions regarding investments or employer matches. If an employee chooses to change their deferral percentage or not defer at all, be sure to maintain those forms in the company records. Another great way to prepare is to spot check individual accounts for proper allocation of distributions and contributions to the correct individuals.

The preparation for your 401(K) audit is important and you should always be sure to ask your auditor any questions you may have. If your company is able to put a focus on properly preparing for your 401(K) audit, it can make for a quick smooth audit.

Alex Broglia