An audit for an employee benefit plan, specifically a 401k plan, consists of many different tests and inquiries being performed. One schedule however, is always needed for the audit: a contribution remittance schedule.
You might be wondering, “What exactly is a contribution schedule and why is it important enough to discuss in a standalone blog post?” Put simply, the contribution schedule is a document that reconciles contribution data between the payroll system(s) and the trust statement (which is prepared by your trustee/record keeper). The contribution schedule is used as a foundational part of an audit for a couple reasons.
First, it helps the audit team determine that contributions were remitted to your trustee in a timely manner. If you don’t already know how important this is, it’s worth noting that timeliness is very important. Especially to the Department of Labor. After all, the reason you’re required to get an audit of your EBP is to protect the interests of your employees and to ensure that your plan is holding true on its commitments to employees.
Second, it helps the audit team reconcile contributions by type. It is also important to make sure employee and employer contributions that were deducted from payroll are the same amounts that were remitted to the trustee.
In some circumstances, amounts on the payroll reports will not align with the amounts on the trust statement during a plan year. This can be confusing; however, some variances are normal and to be expected. A few common variances are listed below:
- Receivables – If a payroll is processed on December 30 of a plan year, but not remitted to the plan until early January a difference will arise. When this happens, payroll indicates a higher amount of contributions than does the trust report. This is common and does not indicate inaccuracy. The contribution schedule makes this variance easy to identify.
- Forfeiture use – In plans with vesting provisions, forfeitures will occur when employees leave. Forfeitures are typically used to reduce plan administrative expenses or offset employer contributions into the pan. When forfeitures are used to offset employer contributions the amount of employer contributions remitted on the payroll report will be less than the amount shown as employer contributions on the trust report. The difference should agree to the amount of forfeitures utilized to fund the match.
- Out-of-payroll loan payments – employees can typically make loan payments on an outstanding 401k loan directly through the trustee’s website. This will cause a difference between loan payments made through payroll, and total loan payments received by the TPA.
While the above differences do not indicate errors, if the contribution schedule is not prepared properly, these typical differences can appear to be significant issues. If done properly, the contribution schedule will clearly identify any differences and should always reconcile the payroll to trust statement.
Lastly it is encouraged to be proactive in completing the contribution schedule. With a little bit of proactivity in preparing contribution schedules throughout the plan year (as opposed to 6-9 months after the plan year ends), your audit team will have more confidence in your stewardship of the plan. Further, tedious (and often billable) additional services performed by your audit team can be eliminated, enabling you to confidently cruise through your EBP audit!
If you have any questions on the above, or about your audit in general, please don’t hesitate to reach out to a Henry+Horne audit professional to assist you. For more information on how Henry+Horne can ease your audit concerns, check out our Audit services page.