What every employee should look into is how the 401(k) audit works. What is a 401(k), exactly? The 401(k) is a retirement savings account that is named after a section of the Internal Revenue Code, which is a law that defines this retirement plan. What it basically does is allow employees to be able to defer part of their salary, before it is taxed, into a retirement savings account. No taxes will touch the money until it is withdrawn from the account. Employers can offer to match the contributions made into the account, sometimes. But one of the best things about the 401(k) retirement plan is the amount of opportunities and possibilities allowed for employees to explore with their money. An employee would be allowed, for example, to invest their money in investment options such as stocks, bonds, mutual funds, guaranteed insurance contracts and individual brokerage accounts. Money can be relocated at any time too, so it’s a great way to build up towards a better retirement.
A 401(k) retirement plan would be subject to government regulations if certain limits are reached within the employers’ plans, and when this happens, it will need to audited by an independent accounting firm, which is called a 401(k) audit, The accounting firm, also called a CPA firm, pretty much investigates the retirement plan to make sure that the plan is fair in representation and that is stable and secure for all employees that are investing their money in it. This is done for the safety of the employees, generally, so that the government can make sure that all employees have equal opportunity for a good retirement later in life.
Who performs these audits specifically? Generally, 401(k) auditors tend to be certified public accountants, who work with the independent CPA firm. Basically they want to make sure that everything is done by the book essentially, and that all compliance to government regulations are being kept up and maintained. When they are conducting their investigations, they normally ask themselves questions such as the ones that follow, which should give you a better idea of what they are looking for:
– How much is the value of the plan and is it fairly valued based on income?
– Are there consistent contributions being made into each account?
– Do all participants have the equal chance at fairness and equality?
– Are the general principles of the contract signed by employee and employer being met?
– What kinds of potential tax issues are being present?
– Is there any possibility of an ERISA-prohibited transaction being made?
401(k) audits are required by the federal government if a certain limit is reached, and this limit would be around 100 participants or more. This keeps large companies in check, to make sure that employees are being treated fairly in this manner, and once this limit is reached, there really isn’t a way for an employer to skip out on the audit. These audits are performed normally to make sure that communication between the accountants and the employers are transparent, and that all employees are being protected with their investments. It’s essentially for the better of the employees.
For any employer who cares enough about employees or who want so to be sure that he or she is following government regulations fairly enough, he or she can ask for a voluntary 401(k) audit, which can be done at any time, really. But how does an employer generally start with their audits and such?
There are actually a lot of documents that need to be gathered in order to prepare for a 401(k) audit. If they are not gathered in a timely fashion, it makes the whole auditing process a whole lot more chunky, which can put the employer into potential trouble. Of all the documents that are needed for a 401(k) audit, what is needed and should be included would be the contracts that are offered to all employees, IRS papers, amendments made to the plan, historical plan documentation, summaries of all financial activity that is part of the plan and more documents.
Essentially, knowledge is power, and if you know more, then you should be able to understand the kinds of rights you have with your employer and with the money that you are investing into your own retirement plan. Maybe this will help you stay secure in a job that you have right now, or inform you that your current position isn’t really ideal and you should really seek out for some that are better. A 401(k) audit is essentially for your benefit, and if you feel like your money isn’t really protected, then it’s time to reconsider!