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Is Your 401k Plan in Compliance & Audit Ready?

Published by Kim Moore on Jun 11, 2020 6:00:00 AM

As your company’s 401k sponsor, you understand that it takes a lot of hard work to make sure your Plan is in compliance and audit Ready. There are 6 areas that are routinely reviewed and questioned during a DOL or IRS audit. Below is a list of things that may affect your plan’s accuracy and compliance.

  1. Don’t assume that your employees have access to, and understand, the complexities of the plan documents. As the plan sponsor, you must periodically review the tasks assigned to the various employees responsible for plan administration. It is crucial that those chosen to administer the plan to understand and operate it in accordance with the plan documents. Confirm that all the plan’s documents are readily available and be sure that employees receive training on plan administration essentials regularly. You might also ask your service provider if they have training videos, booklets, or other material available that your employees can reference.

  2. It is essential that employers maintain adequate and up-to-date employee records. You may find your plan is subject to compliance fees and penalties if supporting documentation is not well maintained. Lack of documentation will also make for a very difficult 401(k) plan audit. Some things that are often found to be at issue are missing documents such as:401k compliance_pondering_question_15396 - Copy (3)
    Signed enrollment forms, whether or not the participant is active or declined enrollment.

    Signed designated beneficiary forms.

    Signed salary deduction forms that match current withdrawal amounts or percentages.

    If applicable, signed distribution, loan, and hardship documents.

    Payroll records, HR files, and other information supporting compensation, payment, and deferral amounts.

  3. Make sure that those who are responsible for enrollment into your employee plan are knowledgeable about the rules of your plan documents. This will ensure that employees are informed in a timely manner about the dates they are eligible to participate in your plan. Be sure to have employees sign an enrollment form even if they decline to participate.

  4. Ensure the Plan Census contains accurate amounts for employee compensation, salary deferrals, profit sharing, and matching amounts. Verify that all employees with compensation are included in the Census regardless of whether they have chosen to participate in the Plan or not.

  5. A fidelity bond must be maintained for all Plans. Department of Labor (DOL) requirements state that the bond coverage must be equal to 10% of the beginning of year Plan assets or $500,000 ($1,000,000 if the Plan contains company equity investments), whichever is the lower amount.  Ensure you maintain proper bond coverage at all times for the Plan.

  6. Be sure to deposit participant salary deferrals on time. It is required that these deposits are made as soon as they are segregated from an employer’s assets, generally, this is done at the time payroll tax deposits are done. Be sure that your payroll administrator, understands the rules and adheres to them. Make sure they understand that you can combine deposits from multiple pay periods into one 401k submission. It’s important that someone periodically reviews the submission dates and amounts to ensure the requirements are being followed. 
Retirement plans can be very complex. As an innovative firm Summit CPA specializes in 401(k) audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine.  We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.
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