401(k) Audit Services. For businesses who offer retirement plans, navigating a 401(k) audit can feel like an uphill battle. Between compliance requirements from the Department of Labor (DOL) and IRS, collecting extensive documentation, and ensuring that your plan isn’t “top-heavy” or favoring higher-paid employees, there is a lot to keep track of. However, with the right support, the 401(k) audit doesn’t have to feel like a burden and disrupt your day-to-day operations.
At Correct Capital, we understand that 401(k) audits can create significant headaches and cannot be avoided. Our team will work with you for everything from document collection to meeting Form 5500 deadlines. Whether you're preparing for your first audit or looking to streamline a previously cumbersome process, we're here to make it as simple and stress-free as possible. You can schedule a meeting with a member of our advisor team, contact us online, or call us at 877-930-401(k) to get started.
What is a 401(k) Audit?
A 401(k) audit is an annual review required for companies with more than 100 eligible participants in their 401(k) plan (Note: Even if you do not have more than 100 employees participating in the plan, you still need an audit if there are 100 that are eligible). The audit ensures that the retirement plan complies with the regulations set by the Department of Labor (DOL) and the Employee Retirement Income Security Act (ERISA). It evaluates the plan’s financial integrity, ensuring that contributions, distributions, and operations are all accurately represented.
While necessary for compliance, 401(k) audits can be complex and time-consuming. Correct Capital helps businesses prepare for these audits by assisting with document collection, assisting with understanding, compliance testing, etc... With the right support, navigating the audit can become a far more manageable task.
Why are 401(k) Audits Necessary?
You must undergo a 401(k) audit for several reasons, ensuring that retirement plans remain compliant with federal regulations and protect both the employer and employees. Here’s why they are necessary:
- Compliance with DOL and IRS Regulations: Audits ensure that your 401(k) plan follows all legal requirements set by the Department of Labor (DOL) and the IRS, particularly under the Employee Retirement Income Security Act (ERISA).
- Preventing Discrimination: The audit checks if the plan disproportionately benefits higher-paid employees (often referred to as “top-heavy” testing) to ensure fairness across all participants.
- Identifying Operational Issues: Audits can uncover errors in contributions, distributions, or other aspects of plan management, allowing you to correct these issues before they result in fines or penalties.
- Filing Form 5500: The audit ensures proper and timely submission of Form 5500, an annual report detailing the plan’s financial status, which is required to maintain compliance with DOL and IRS regulations.
- Contribution Limits: The audit ensures that employer and employee contributions stay within IRS limits for the year, helping to avoid excess contributions that could lead to penalties.
- Fee Reasonableness: Auditors may review plan fees to ensure they are reasonable and not overly expensive for participants. High fees can raise compliance concerns and negatively impact the long-term growth of employee retirement savings.
- Fiduciary Oversight: The audit ensures that employers are acting in the best interest of plan participants, meeting their fiduciary responsibilities as required by ERISA.
- Verification of Plan Documentation: Ensuring that the plan's documents, policies, and operational practices are aligned with regulatory guidelines is a critical part of the audit.
Types of 401(k) Audits
There are two primary types of 401(k) Audits that employers may encounter, depending on the size and complexity of their plan:
- Full-Scope Audit: This is the more comprehensive audit required for most larger 401(k) plans. In a full-scope audit, the independent auditor reviews all aspects of the plan, including financial statements, compliance with Department of Labor (DOL) and IRS regulations, and participant data. The auditor examines supporting documentation for contributions, distributions, and other transactions to ensure accuracy and compliance.
- Section 103(a)(3)(C)) Audit: Previously called a "Limited Scope Audit," these are for plans with investments held by a qualified, regulated financial institution (such as a bank or insurance company), the employer may qualify for a limited-scope audit. In this type, the auditor is not required to audit the investment information certified by the financial institution, which can significantly reduce the audit’s complexity and cost. This can make it a more attractive option for some businesses, provided they meet the criteria.
401(k) Audit Pain Points for Employers
While 401(k) audits are necessary for compliance, they often present significant challenges for employers, especially those managing larger plans. Here are some of the key pain points businesses face:
- Document Collection and Management: Gathering the right documents, such as account statements, tax returns, and employee data, can be time-consuming. Employers often struggle to organize and submit the necessary paperwork, especially for larger, more complex plans.
- Compliance with Changing Regulations: Staying up to date with evolving DOL, IRS, and ERISA regulations is difficult. Compliance missteps can lead to audit failures, fines, and costly corrections down the line.
- Discrimination Testing: Ensuring that the plan isn’t top-heavy requires careful compliance checks and can lead to additional documentation and reporting.
- Time and Resource Demands: Preparing for an audit pulls HR professionals, business owners, administrators, and others away from their core responsibilities, increasing stress and diverting attention from day-to-day operations.
- Form 5500 and Timely Submissions: Many businesses struggle to file Form 5500 accurately and on time, which is a key component of 401(k) compliance. Missing the deadline can result in penalties and create further issues for the company.
At Correct Capital, we understand these challenges and provide tailored support to make the audit process smoother. From assisting with document collection to ensuring compliance with regulations, our team helps take the burden off your shoulders.
The type of audit you need depends on your plan’s specific details, such as the nature of its investments. At Correct Capital, we can help you understand which type of audit your plan requires and ensure you're fully prepared for either process.
401(k) Audits for Multiple Employer Plans (MEP) and Pooled Employer Plans (PEP)
For employers seeking to reduce the administrative burden of a 401(k) audit, Multiple Employer Plans (MEP) and Pooled Employer Plans (PEP) can offer relief. These plans allow unrelated employers to join a single 401(k) plan, often eliminating the need for employer-specific audits.
- Multiple Employer Plans (MEP): These plans pool together several unrelated employers into one 401(k) plan, reducing the cost and complexity of managing and auditing individual plans. This setup allows businesses to share the administrative responsibilities and potentially avoid the annual 401(k) audit altogether.
- Pooled Employer Plans (PEP): Introduced more recently, PEPs allow unrelated employers to join a shared 401(k) plan overseen by a pooled plan provider (PPP). This structure simplifies compliance and reduces costs, making it attractive for businesses looking to streamline their retirement offerings.
Both MEPs and PEPs can significantly reduce audit-related costs and time commitments while ensuring regulatory compliance. Moving to one of these plans may be especially appealing for smaller businesses that want to provide a 401(k) but face challenges related to cost and administrative burdens.
Working with the Right 401(k) Audit Team
401(k) audits can seem difficult, but choosing the right support can make all the difference. Working with a team that understands both the technical and practical aspects of the audit process can save you significant time and stress. Here’s why partnering with the right experts matters:
- Experience and Expertise: A skilled team will be familiar with the complexities of 401(k) audits, including both full-scope and limited-scope audits. We can guide you through the documentation process and help identify areas of improvement within your plan.
- Compliance Assurance: The right team will help you stay on top of evolving regulations, ensuring that your plan meets all necessary standards.
- Tailored Support: Every 401(k) plan is different. An experienced team will work closely with you to understand the unique needs of your plan and help you prepare for your specific audit requirements. Correct Capital currently manages over 37 plans in both small and large companies, and represents over $212 million in total plan assets* across the United States, which allows us to understand the nuances of any company 401(k) plan.
- Saving Time and Resources: Preparing for a 401(k) audit can take considerable time away from day-to-day operations. The right partner will take on much of the administrative burden, allowing your HR and finance teams to focus on other priorities. Correct Capital helps streamline the process, reducing the pressure on your internal team.
- MEPs and PEPs Expertise: For businesses in a Multiple Employer Plan (MEP) or Pooled Employer Plan (PEP), while an individual plan audit is not required, you're still required to comply with all the rules and regulations, just with less administrative burdens after plan year end.
*as of March 2024
Partnering with a knowledgeable, reliable team is essential to making sure your 401(k) audit is as painless as possible. With Correct Capital by your side, you’ll have the confidence that your audit will be completed efficiently and accurately.
Call Correct Capital for Help With Your 401(k) Audit
Complying with 401(k) audits is both a legal requirement and an opportunity to ensure your company's retirement plan remains as beneficial as possible to your employees. Correct Capital’s expertise in guiding businesses through the 401(k) audit helps ease the burden, allowing you to focus on your business while ensuring you're not penalized for non-compliance.
Contact Correct Capital today to schedule a consultation and let us help you prepare for a smooth, efficient audit. Our team of experts will assist with everything from document collection to compliance checks, making sure your plan is set up for success. You can schedule a meeting with a member of our advisor team, contact us online, or call us at 877-930-401(k) to get started.
