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How to Ensure a Smooth 401(k) Audit Process

How to Ensure a Smooth 401(k) Audit Process

July 13, 2021 | by Robert McGee, Audit Partner at Cambaliza McGee LLP

A 401(k) audit is required by the Employee Retirement Income Security Act (ERISA) to ensure that your 401(k) plan is compliant with the IRS and Department of Labor regulations. The audit process can appear harrowing and tedious; however, if you take some time to understand the process and requirements, you set yourself up for success and ensure the audit goes smoothly.

Tips For An Efficient Audit Process

Choose an Audit Project Manager

The audit process requires a great deal of back-and-forth communication between the company and the auditor to gather the necessary information required. Having an Audit Project Manager will make the entire process more efficient for your company and the audit team. It'll give the audit team point person to contact before, during, and after all the work is complete.

Maintain All Your 401 (k) Plan Documents

The 401(k) audit requires a review of all plan documents. Organizing your records in advance can save you time and energy during this process. The auditor will work with the plan recordkeeper to access the plan's online account and necessary documents.

In addition to the plan's documents, the auditor will need access to participant data testing and review of employee files. It may be very time-consuming at first, but maintaining accurate employee files will save time during the audit process and beyond.

Integrate Your Payroll and Recordkeeping Systems

Many of the problems elucidated during the deposit review have to do with discrepancies between payroll and recordkeeping.

Although many recordkeepers and payroll companies can integrate these systems, it's essential to ensure that both systems are compliant with the 401(k) program rules. Both your payroll manager and 401(k) recordkeeper should understand the compliance and reporting issues when setting up the integration process. 

Keep Track of All The Important Deadline Dates

There are several key dates you should note to ensure the timely completion of the audit process. These include the audit date, the date by which all audit requests must be provided, the date of the audit fieldwork, the date financial statements must be provided, and the date by when the final report must be provided. Your Audit Project Manager should communicate these dates to your internal team to ensure requests for essential documents are received promptly.

Maintain a List of Plan Amendments and Changes During the Year

Your audit firm will need copies of all plan amendments, including eligibility amendments, changes in distribution and vesting requirements, and changes in plan loans. Keeping track of all these changes will make it easier to submit these for your audit.

Choose a Knowledgeable 401(k) Auditor

As I mentioned above, the 401(k) audit process can be harrowing and tedious, and whenever the IRS is involved, you need to choose your partner wisely. Experience with 401(k) audits and understanding how to maximize efficiency during the audit process should be on your list when selecting an audit partner. 

The auditing experts at Cambaliza McGee LLP are well-equipped to take care of all your auditing needs, including your 401(k) audit. You can trust us to keep you informed and educated throughout the process and manage your audit the same way we would for a beloved family member. Check out our audit service page for more information on how we can help you navigate the confusing world of 401(k) audits.