Tips to prepare for your upcoming 401k plan audit

Spring is in the air! Flowers are blooming, grass is growing… and audit request lists are going out to Plan Sponsors for the annual audits of their 401k plans. While the receipt of these request lists can cause blood pressure to rise at the Plan Sponsor, there are some simple tasks the Plan Sponsor can perform to prepare for the annual audit of their 401k plan. Here are some tips for Plan Sponsors which will help to make the audit process go smoother

Designate someone at the Plan Sponsor as being in-charge and responsible for the audit. The Plan Sponsor should have a point person for the audit team to contact. The point person at the Plan Sponsor is responsible for ensuring that all audit requests are provided to the audit firm timely, as well as being the main point of contact before, during, and after the audit fieldwork.

Set up a calendar of key dates, to keep the Plan Sponsor and audit team on track to a timely completion of the audit. Plan audits tend to drag out if there are not key completion dates for the audit firm and Plan Sponsor to work toward. 

-         Date TPA will provide audit package to audit firm.

-         Date all audit requests will be provided to audit firm.

-         Dates of audit fieldwork.

-         Date open items will be provide to audit firm post-fieldwork.

-         Date draft financial statements to be provided to Plan Sponsor.

-         Date final reports to be provide to Plan Sponsor.

Provide your audit firm with a list of key subsequent events occurring after the end of the plan year. Considerations:

-         Any layoffs which could potentially trigger partial plan termination implications?

-         Were there any additional employer contributions after the end of the Plan year?

-         Are there any legal issues?

-         Have there been any plan amendments?

-         Has there been an approved merger or termination of the Plan?

Were there any plan testing failures? How were top heavy or ADP/ACP testing failures corrected? Give your audit firm a list of the compliance testing results, and if there were any failures, provide information for how the testing failures were corrected.

Provide minutes from meetings plan oversight committee. If the Plan Sponsor has not kept meeting minutes, now is the time to put those together.

Keep a summary list of key plan amendments and changes during the year. Provide your audit firm with copies of all plan amendments. Key plan amendments which will impact your plan audit include:

-         Eligibility amendments

-         Matching formula changes

-         Changes in vesting requirements

-         Changes in distribution requirements

-         Addition or removal of plan loans

Has there been any correspondence from the Department of Labor or IRS? Let your auditor know and provide copies of the letters.

Has there been changes in key personnel working with the plan? Let your plan auditor know about these changes.

Were there any changes in the TPA, custodian, recordkeeper, or payroll provider during the year under audit? If so, let your auditor know about these changes early in the planning process, as these change may require your audit firm to perform additional audit procedures to test changes in these providers.

Obtain the SOC-1, Type II reports for your Plan’s key service providers. Typically the Plan’s recorkeeper/custodian and the payroll provider are the key service providers for your plan. Make sure someone at the Plan Sponsor has read and reviewed these reports prior to the audit of your Plan. If there are issues in the SOC-1 report you will need to determine if there are any impacts to your plan and discuss with your auditor.

Timeliness of the remittance of participant contributions. Review a schedule of your pay dates and the dates the related employee deferrals were remitted to the custodian. If the number of days between the pay date and remittance date are too large compared to others during the year, you will need to consider reporting these as late remittances on your 5500. Provide a list of potential late remittances to your audit firm for discussion.

Census reconciliation: provide your auditor with a reconciliation of total gross wages from your annual census report to the year to date payroll summary report. Difference between wages on the census report and payroll summary report could indicate a potential error in the census report.

Have all audit requests ready when the audit team arrives. This will allow your audit team to get in and out of your office faster.  Or, for audits performed remotely, have all information provided to your auditor prior to the scheduled start date of the audit.

Other considerations for a 1st-time audit:

Need to provide the current year AND prior year audit package to your auditor.

Will need to provide all relevant plan documents to your auditor:

-         Full Plan Document

-         Summary Plan Document

-         Copies of all plan amendments

-         Copies of insurance contracts

-         Other relevant contracts and agreements.

Just remember that the auditor of your 401k plan is there to work with you, not against you. We are looking to find ways to protect you and your plan in the event your plan is selected by the Department of Labor for an examination. The more the Plan Sponsor can do to prepare for the annual audit, the smoother and quicker the audit process will be completed.

Lastly, make sure the CPA firm which audits your 401k plan specializes in these types of audits. Bradley Bartells of MUN CPAs is a 401k audit specialist. Give me a call to talk about your plan audit questions and concerns.