Your Day-to-Day 401k Tasks Can Lead to Audit Success

December 14, 2022

Maintaining your benefit plan is a daily responsibility and so is preparing for the audit.  The time and effort that you dedicate each day will result in a smooth, more efficient and less stressful audit experience.

The following information and tips will help your team administer the Plan in a timely and accurate manner, identify and resolve Plan issues in advance of the audit, and prepare for an achievable audit timeline.

Organize Plan Documents

Gather all signed documents relevant to your Plan so they are ready for quick, easy access. Types of documents may include:

  • Plan document
  • Adoption Agreement
  • Summary plan description
  • Trust agreement
  • Third party administrator agreements
  • Recordkeeper agreements and latest fee arrangements
  • Loan procedures
  • Board resolutions

Stay organized by keeping a log of each document received from each of your service providers with the document name, its effective date and any notable changes.  File documents in one location and update the log as you submit new documents to your auditor upon signing your engagement letter.

Review Plan Provisions

Review the Plan documents to ensure the Plan provisions are written and administered as intended. The following provisions should be clearly defined and implemented accordingly:

  • Eligibility requirements
  • Entry dates
  • Eligible compensation
  • Vesting

Whenever there is a new provision or provider, be sure to test that the change has been implemented correctly by your team and by your providers.

Strengthen Internal Control Processes

Timely and accurate data entry throughout the year is the key to avoiding costly errors.

  • Update new or terminated participants and any participant changes in payroll, your HRIS, and your plan sponsor website concurrently and on a timely basis.
  • Remember to document that the data entry and review have been completed.
  • Maintain participant files as employees are hired and as they terminate. Keep the source documents that support the demographic data used in your benefit plan administration
  • Your file retention policy should extend the maintenance of participant files until the participant has distributed their benefit plan account and are no longer a participant.
  • Review Plan and participant transaction reports provided by the recordkeeper on a frequent basis to ensure it is operating in compliance with the Plan document.
    • Is the distribution type for that participant reasonable?
    • Why are there forfeitures in our safe harbor plan?
    • Is that rollover contribution coming from a qualified account?
    • What is the line item entitled “other”?

Respond Timely to Compliance Testing Results

  • Be sure to meet your compliance testing and 5500 guidelines and deadlines as requested by your third-party administrator.
    • If you fail compliance testing, make the corrections and file the support for what was corrected, the amount, and the date for easy retrieval for the audit.
    • If you have a true-up match, review it for accuracy, make the deposit, and file the support for who, how much, and when.

Go Beyond Standard Reports

While standard reports show the activity in the Plan and the performance of Plan investments, there are often additional reports that can indicate potential issues. Check your plan sponsor portal for alerts such as:

  • Stale checks
  • Inconsistent or missing participant data
  • Expected contributions not received

Include the review of the relevant reports in your internal control process to identify potential issues or errors resulting in timely identification and correction. If there are any infrequent transactions or unusual events, document, file, and present the support to your auditor during the planning phase.

Update Audit Schedules Periodically

Update internally prepared schedules during the year so that they are complete, reviewed, and available upon request. These may include the census, the contribution schedule, employer contribution calculations or other schedules used in your plan processes.

  • Look to see what schedules have been prepared by your team and requested by the auditor in past audits. Make sure those files are prepared, reviewed for accuracy, and ready to go.
  • Provide accurate and complete documents the first time by reconciling reports and double- checking dates or other data requested.
  • Auditors are not always asking for the same schedule or support as in a prior year. If in doubt, ask first to reduce the chance of providing an unnecessary document or the same document multiple times.
  • Understand Plan expenses, how they are calculated and whether they are paid by the Plan or the Sponsor.
    • If your Plan uses an ERISA budget account, maintain a file for any invoices paid from the Plan ensuring it was an eligible Plan expense.
    • Review or recalculate the amount being paid to your investment advisor or other provider and agree to the basis points per your agreement.

Identify Plan Errors

When you prepare for the audit throughout the year, you may detect errors or late employee contribution remittances.  Mistakes happen, but there isn’t anything that can’t be fixed.

  • Timeliness of identification and clear documentation along with a reasonable correction is the goal.
  • Call your audit team to discuss how to correct any issues found and what is needed to support the correction.
  • Prepare the correction schedule and make the corrections to the Plan when the error is found. This can impact not only the correction needed, but the cost of the correction. File the support so it is ready for your audit team.
  • When you remit employee contributions outside of your normal remittance pattern, make the necessary lost earnings deposit immediately and file a Form 5330 for excise tax, if applicable.

Coordinate Your Audit Timeline with Other Responsibilities

Schedule your team’s audit responsibilities on your company calendars while considering other initiatives and events to avoid conflicting priorities.  It can be helpful to schedule your audit as early in the year as possible. Consider the availability of your audit package, which is needed to plan the audit.

The audit phases which need to be scheduled for your team include:

  • Gathering the initial information requests prior to auditor planning
  • Gathering the test selection support prior to auditor field work
  • Being available for questions and requests that arise during field work
  • Researching issues that may remain unresolved at the end of audit testing.

Set deadlines to receive audit requests from the auditors and deadlines to provide those requests to the auditors.  Address any missing or unavailable items with them while you are gathering the information so that an alternative solution can be developed.

Monitor Audit Progress:

Monitor the progress of your audit by checking the outstanding item list daily.

  • The secure portal used for audit requests and submissions can be set up to deliver updates at a cadence that works for your schedule.
  • Submit the audit support and schedules requested in advance of the deadline to ensure they are available when scheduled. If a deadline cannot be met, coordinate with the audit team immediately to set a new date so that scheduling can be adjusted. When items are submitted without the auditor expecting it, there could be delays to your audit timeline.
  • Connect your providers to open lines of communication. Efficiencies can be gained if auditors can reach out directly to the account representatives at your recordkeeper, third-party administrator, and investment advisor should there be a question that requires their input.
  • Stay active in the audit process to keep things moving at a pace that meets your expectations. For example, follow up with participants to whom confirmations have been sent to encourage and expedite responses. You can also follow up with the recordkeeper on audit requests if they have not been received within the estimated time frame.

You can never go wrong when you reach out to your audit team during the year with any questions that arise, whether it is related to overall plan processing, an individual transaction, or how to fix an error. Let your day-to-day plan administration result in a stress-free audit.

Got questions? Connect with an experienced Aprio advisor today.
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