You could not be more proud of the company you have built, nor of the people who work every day to make it a success. You work hard to make sure you are a good employer, and that your employees are well taken care of. That is why you have chosen to offer your employees a 401k plan. 401k’s are fantastic for employees; they are retirement savings accounts. Usually, they are sponsored by employers, and they are popular because the involved parties are allowed to make contributions to the account before those contributions are taxed; the funds will not be taxed until they are withdrawn from the account. You have been careful in deciding where to invest the funds in your employees’ 401k’s, being sure to put the money in a variety of places, including stocks, bonds, mutual funds and individual brokerage accounts. Your 401k plan is flexible, so the money can be redistributed among all of these different investments. 

As is to be expected, your employees have been enthusiastic about joining up with the 401k; they are especially appreciate of the fact that your business matches your employees’ contributions. Of course, it is wonderful that over 100 of your employees have chosen to join in on the 401k plan. However, getting over 100 participants means that you are required by government regulations to undergo a 401k audit. This is a required step for your company, and it must be performed by an independent accounting firm. Of course, before you get started with the process, you want to understand exactly what is involved in going through a 401k audit. Today we are going to talk about just that.

  • What is a 401k audit?
    A 401k audit is performed by a Certified Public Accountant, usually one that works for an accounting service. Their job is to comb through every single detail of your plan, making certain that it follows all requirements that are set by the SEC and federal regulators. Furthermore, they will determine whether or not it is holding true to the terms the employees and company both agreed to. Using their expertise and years of education and experience, the CPA assigned to your audit will go through every detail of your plan, asking questions and doing calculations as they go. Once they have gathered all of the information they need, they will be able to decide if the plan meets the requirements the government sets, and if it does what the participants of the plan have agreed to. You and the plan will be provided with a summary of their findings, because your 401k is closely with the financial filings of your company. If there are any issues that need to be corrected, this summary will be vital in addressing them.
  • What is a 401k auditor looking for?
    The CPA who is performing the 401k audit is looking for anything that indicates the plan is not adhering to the rule and regulations that are  required. In order to do this, they will need to ask a number of questions. These questions include –
    -Does each employee have equal access to the 401k?
    -Are all parties making timely contributions?
    -Do payments being made fall in line with plan requirements?
    -What tax issues may arise from the plan?
    -Are all government regulations being followed by the plan?
    Once your CPA has answered each of these questions to their satisfaction, they will be able to determine if your 401k is functioning as it should or if any changes are needed.
  • What can you do to prepare for the audit?
    As a business owner, you have learned that it is vitally important to be prepared for whatever is coming. You are taking the same approach with your 401k audit. There are things you can do to be as prepared as possible, namely gathering important documents that the CPA in charge will need. You will need to have your executed plan document, your current IRS determination,  along with the executed amendments to the plan document. If any changes have been made to the plan. you will need to have Both the current and historical summary plan descriptions will also need to be provided. It is also possible that material changes have been made to the plan; if this is the case, you must turn over summaries of those changes. Finally, you will need to hand over your Form 5500, which is the form you are required to file with the IRS as part of the 401k plan. By having these documents ready, you can be sure you are as prepared for your 401k audit as possible.