Navigating the complexities of 401(k) plan audits can be daunting, but crucial for financial advisors supporting plan sponsors. I recently spoke with Nate Davis from Haney Company on the importance of these audits and how to approach them for success. Read the highlights below.
The Importance of Annual 401(k) Plan Audits
Annual audits are required for all 401(k) plans with over 100 participants. These audits, conducted by independent CPA firms, ensure compliance with ERISA regulations and help identify any discrepancies in financial reporting. The importance of choosing the right audit partners cannot be emphasized enough. Not all CPAs are equipped to handle ERISA audits.
Common Red Flags and How to Avoid Them
We pointed out several common issues including inaccurate participant census data and late remittance of employee deferrals.
For plan sponsors, the importance of maintaining accurate records and ensuring that plan operations align with the plan document was stressed. Plan sponsors who address these issues can avoid penalties.
Preparing for a Successful Audit
Preparation is key to a successful audit. Nate and I recommend engaging with auditors early, ideally in the spring, to ensure all necessary documentation is in order. We also advise plan sponsors review prior year findings and address any known issues in advance. By doing this, plan sponsors facilitate a more efficient audit process while avoiding last-minute surprises by being prepared.
Understanding the intricacies of 401(k) plan audits is vital for financial advisors. Sponsors navigate the audit process with confidence by choosing the right partners who help them maintain accurate records, and preparing thoroughly. Audits are not to be feared but embraced as a tool for ensuring compliance and protecting participants’ interests.
Want a printable checklist that turns 401(k) plan audits into an easy A-Z process? Click here to download.
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