3 Frequent 401k Plan Audit Deficiencies Noted by the DOL

If you’re a retirement plan sponsor of large benefit plans, chances are you’ll need to work with an assurance and audit firm to complete a 401K plan audit. While most audits are found to be clean or have minor deficiencies, major deficiencies are always a risk unless you work with a trusted and experienced audit firm.

Let’s review what a 401K retirement plan audit is and the top deficiencies seen by the Department of Labor (DOL) so you can make a plan to be prepared for your next audit.

What is a 401K Plan Audit?

An independent firm conducts a 401K plan audit to ensure that your company meets the requirements outlined in the Employee Retirement Income Security Act of 1974. This type of audit examines various aspects of your plan, including:

Financial statements and disclosures
Compliance with the plan adoption agreement approved by the IRS and DOL regulations
Benefit payments
Employee eligibility requirements
Reviews all fiduciary responsibilities.

How Can You Avoid Deficiencies in Your 401k Plan Audit?

Unfortunately, employee benefit plan audit deficiencies are common.

Why does a deficiency happen?

Deficiencies occur when your documentation and procedures are incorrect, or the audit is inaccurate. As the Plan Administrator, you can do several things to ensure your audit is clean and accepted by the DOL’s Employee Benefits Security Administration.

1. Properly Maintain Your Records

Inaccurate records are a frequent cause of employee benefit plan audit deficiencies. Thankfully, this is an easy fix. A quarterly check of your records can help reduce deficiencies in your audit. Take the time to ensure your documentation of contributions, distribution, loan documents, and participant data is correct.

2. Review and Understand Plan Documents and Operations

Unfortunately, failure to comply with your 401K’s adoption plan is a widespread shortfall for many sponsored plans. While reviewing and maintaining your records, you should also check in with your plan operator to ensure they understand your benefit plan.

It is essential to follow your 401K plan to the letter. Plan distributions must be paid on a timely basis, and your employees’ contributions must also follow a strict schedule.

3. Hire Qualified Auditors

To avoid deficiencies in your audit, you need a qualified auditor who is well-versed in 401K plan audits. According to the AICPA, firms that conduct fewer than six audits a year are more likely to have higher deficiency rates. There are several reasons why this could be the case. It could be that the auditor is unfamiliar with 401K employee benefit plan audit requirements.

Before you hire an auditor, check their qualifications. Firms that are members of the Employee Benefit Plan Audit Quality Center must undergo additional training, quality control, and self-monitoring to ensure their auditing practices comply with current regulations and standards.

Partner with Assurance Dimensions for Your 401K Plan Audit

As the Plan Administrator, you have complete control over avoiding 401K audit plan deficiencies. Choosing the right audit firm for your retirement plan audit can also help reduce audit deficiencies.

At Assurance Dimensions, we perform hundreds of annual retirement and employee benefit plan audits. As a member of the AICPA Employee Benefit Plan Audit Quality Center, we strive to meet and exceed the highest quality standards in employee benefit plan audits. So, you can rest assured that your employee benefit plan audit is successful.