As an organization that offers retirement and 401 K plans to your employees, you realize the importance of meeting regulatory requirements to ensure plan assets are secure. A detailed 401 K audit is an essential part of this process, but there are major problems you can face if you work with an inexperienced CPA firm. In this article, we’ll outline some of the most common pitfalls during an employee benefit plan audit and how you can stay clear of them during your next audit.
Five Major Pitfalls to Avoid in Your 401 K Audit
1. Mistakes with Eligible Compensation
401 K plans allow employees to contribute part of their earnings to their retirement savings plans. This can get tricky when employees are offered bonuses, commissions, and other rewards-based earnings. However, sometimes these plans are not carefully or correctly implemented (as in, an employee overpays or their contributions are not paid on an appropriate schedule). In that case, this can cause a company to be non-compliant with regulatory standards. A 401 K audit, also called a benefit plan audit or retirement plan audit, helps determine if all employee contributions are correctly applied and timely.
2. Overpayment of Employee Contributions
Each year, the Internal Revenue Service (IRS) caps the amount of money an employee can put into their 401 K plan– meaning, once an employee reaches the contribution cap, they cannot add any more money to their 401 K plan until the following year. A benefit plan audit checks for compliance with these IRS standards. This helps businesses suggest appropriate employee contribution amounts to help employees stay within the bounds of IRS regulations.
3. Clerical Errors
Making a clerical error is easy, but it can be costly, especially when dealing with benefit plans and audits. All employer and employee contributions must be appropriately recorded, payroll contributions must be on time, and receipts of all activity. Conducting a 401K audit can highlight clerical errors, like a typo on an employee contribution form or a missing amount from an employer contribution.
4. Payment Benefits Errors
One common pitfall companies encounter with benefit plans is payment benefit errors. When this happens, contributions do not match the terms of the benefit plan. A 401 K audit will show if there are eligibility errors or a need for receipt regarding payments.
5. Failure to Complete a 401 K Audit
It seems obvious, but businesses failing to complete a 401 K audit is a common problem. Generally, companies with over 100 eligible participants must undergo an independent retirement plan audit at the beginning of the plan year. Failing to do so can be a costly mistake.
Avoid 401 K Audit Mistakes with Assurance Dimensions
At Assurance Dimensions, we have decades of experience conducting benefit plan audits and working with businesses ranging from 100 to over 10,000 employees. When you partner with us, you can rest assured you’re working with a team of accounting professionals who can help you navigate the regulatory complexities of benefit plan audits.
Contact us today to learn more about our audit and assurance services.
