Easy Tips to Prepare for a 401(k) Audit.

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Ensure a happy retirement.

In case you were not already aware, in the US a 401(k) plan is a company-sponsored retirement account that employees can contribute to. It is also possible for employers to make matching contributions. Correspondingly, a 401(k) audit is therefore an audit of the financial standing of a plan. It is usually conducted by an independent qualified public accountant. Additionally, when a 401(k) audit is required, it is submitted along with the Plan’s Form 5500.

Put simply, the purpose of a 401(k) audit is to check that any of the work involving the 401(k) was completed correctly. If it was not, then extra steps are taken to fix things. With all of this in mind, a 401(k) audit can be an overwhelming and time-consuming process. So, let us discover some quick tips to ensure that you are well prepared for your next audit.

Get Your Audit Documents in Order Now

When preparing for a 401(k) audit, your first step should be to gather all documents relating to your plan. This includes any amendments that were made during the year. An auditor will definitely ask to see these documents and therefore pulling them together sooner rather than later can save time. The more time that you are able to save now, the easier your audit will be to conduct.

Prior to your 401(k) audit, all documents such as your plan details, any timestamped communications, and payroll data should be kept in one place. Taking these steps now can minimize the audit workload further down the line, and this can have a positive impact on your audit cost. If you fail to prepare the necessary documents for your audit, this can prove costly. Ideally, you want your audit to take place as efficiently as possible and so proactivity is crucial.

Integrate Your Payroll

One common area where auditors spot mistakes during a 401(k) audit, is payroll. However, it is important to remember that some payroll errors are totally avoidable through the use of an integrated payroll and recordkeeping system. By ensuring that your payroll and recordkeeping systems work in tandem, you can significantly reduce the potential for cash transmission mistakes. Correcting these types of errors is possible, but integration can prevent them from happening in the first place.

Just make sure that your payroll is perfectly aligned with your plan documents. Always double check that your payroll properly applies the definition of compensation as set out in your plan and keep a close eye on employees that are eligible to make deferrals or that receive employer contributions. Any loan repayments should match what is laid out in your records, and once any loans are paid off, payroll should automatically stop any further payments from taking place.

Future Planning

To make the audit process even smoother, you might even want to consider providing your auditor with any relevant information regarding subsequent events scheduled for the end of the plan year. This might include any layoffs that could potentially trigger partial plan termination implications for example. Or, if there are going to be any additional employer contributions after the end of the plan year.

If there have been any major changes in key personnel working on the plan, this must be made explicitly clear. Furthermore, any legal issues should be highlighted, and you should also inform your auditor of any scheduled amends to your plan. Approved mergers or terminations should also be discussed in detail. Ultimately, if you have any concerns about a 401(k) audit then do not hesitate to reach out to an auditing expert for help with common issues such as administrative tasks and ensuring compliance at all stages.

Above all, by acting now, and addressing any outstanding 401(k) auditing issues immediately, you can avoid larger problems in the future. Although any kind of financial audit can be worrying, advance preparation is one of the best ways to put your mind at ease.

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