Know About 401k Audits and Plans
When we discuss 401k audit and retirement plan audits then a very important question arises that is when does a 401(k) or other retirement plan require an annual audit. The word “audit” whenever cited; raises questions and discomfort among people. The reason being; lesser knowledge of the audits which they are obliged to pay and which one doesn’t concern them. 401k Plan Audit is no less an exception which is complex for the people who are not familiar with it.
Does your 401k plan require an annual 401k Audit?
A lot of non-public businesses are not indebted to audit their book annually. While figuring out if you are bound to pay for your 401k plan audit; primary requirement is to determine the number of eligible participants in the plan at the outset of the plan year. Such plans are termed “Large Plan”. ERISA (Employee Retirement Income Security Act) of 1974 obligates a firm to have their financial statement’s annual audit attached to their Form 5500 through an independent qualified CPA to DOL.
Who is called an eligible participant?
When an employee meets the requirements mentioned in the plan documents i.e. 401k or profit sharing plan then only they are entitled to receive the benefits. The requirements of an employee are which might be less prohibitive:
- Minimum age of 21
- Minimum service year of 1
403(b) plan gives the power of “universal availability” to an employer where if you defer an employee’s income, it’s mandatory to provide the same endeavour to every employee.
But some exceptional employees exist in this plan; that are excluded, such as the employees who annually share $200 or less, have weekly working hours less than 20 and are the students who provide services under Internal Revenue Code Section 3121(b) (10). Along with this, non-resident employees and the ones taking part in 401k, 403 b or 457b plan are also excluded.
What are the exceptions in the” 100 eligible participants” rule?
80/120 Participant Rule:
This rule lets the organization with participants between 80 and 120 since the first day of the plan year, to be filed under the same category. Whether a plan comes under large plan or small plan depends on the strength of the participants.
When does SEC(Securities and Exchange Commission) consider a plan agreeable to reporting prerequisites?
SEC is diligent to demand a form to be filed by the plans that involve the stock purchase, savings and related plans having securities that are registered under the Securities Act 1933. The form i.e. to be filed is 11-K which is applicable to Section 15(d) of Securities Exchange Act 1934.
In spite of the fact that while filing for SEC rules, PCAOB standards audit a plan; to file with the DOL, the firm is also obliged to audit in compliance with GAAS(Generally Accepted Auditing Standards).
What is the objective behind plan audit?
An audit brings to light the operational inaccuracies along with the transactions that are considered illicit. So it gives them a chance to redeem the damage by granting plan sponsors the key to gain success for their firm.
How is 401k audit result beneficial for plan sponsors?
When one is through with the annual audit, the plan sponsor obtains multiple communications which prove advantageous as he gains more knowledge regarding his business. This can be used to:
- strategize for the areas that are not yielding
- Reform the processes
- Empowering firm’s management
How should one plan for the 401k audit?
Federal Government has stated some rules and regulations that are mandatory for both 401k plans, other retirement plans and employer as well. It’s quite essential to have the understanding of the same which can be quite complex. So contact your accounting consultant if you face queries as to when your retirement plan needs an annual audit.
For a free consultation regarding 401k audits or retirement plan audits, please get in touch with us here.