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401(k) Audits, Exploring Truths and Myths

In my conversation with John Russon, Partner at Pension Assurance I learned several things that could benefit employers as they think about their 401(k) audit.

  1. The DOL is keenly focused on and are concerned about the quality of retirement plan audits. Click here to read the DOL Retirement Plan Audit Study.

  2. RFPs for retirement plan auditors will become a more common strategy to screen and select auditors going forward.

  3. Companies that are growing and approaching the participant threshold to require an audit should pay close attention to the number of terminated employees with a balance, these ex-employees are part of your participant count towards your audit requirement.

  4. Participants for audit purposes are defined as:

  • Employees who are actively participating

  • Eligible employees without a balance

  • Terminated employees with a balance

  1. Companies going through their first plan audit are typically tripped up by timeliness of the remittance of employee contributions and their adherence to their plan’s definition of compensation.

  2. 401(k) Audit Truths

  • A Large Plan needs an audit every year, assuming the participant count has not dropped below the audit threshold.

  • I can pay my audit fees out of the plan, with an ERISA account or plan forfeitures. However, this should trigger some additional fiduciary review as it would be considered a plan fee.

  1. Common 401(k) Audit Myths

  • Any auditor can perform a 401(k) audit.

  • Only my current active employees are counted when determining if we need a 401(k) plan audit.

  • I have a limited scope audit, so there is not a lot for my auditor to do.

  • Our 401(k) audit examines all transactions and activity in our 401(k) plan

  • Our audit report did not show any material weaknesses, so our plan is in perfect health.

  • My auditors recommendations are just that, recommendations and are optional for us to fix.

  • My 401(k) plan auditor has a fiduciary responsibility to our plan.

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