Yes, 401(k)s can be audited. But, before you race to your file cabinet to find your records, let us explain what this means and we’ll dive into what happens in a 401(k) audit.
Federal law requires that 401(k)s and other types of retirement plans to be audited.
The primary objective of a 401k audit is to ensure that the 401k complies with government regulations and the requirements specified within the plan documents.
What Does A 401(k) Audit Involve?
A 401k audit looks at two major areas:
- To see if the plan is compliant. The auditor wants to make sure that the plan is operating with the Department of Labor and IRS regulations as well as with the plan-related documents.
- Financial reporting. They want to make sure that the financial information reported is accurate on form 5500, and the plan financial statements, including required disclosures.
A big part of the audit is to ensure that the plan is “fair” to all employees eligible for the retirement plan. The 401(k) audit is one way to help regulate this.
But, no reason to be stressed. Use our Evaluator to see if you’re using the right retirement plan type for your company.
How to Prepare For a 401(k) Audit
There are three steps you need to take to properly prepare for a 401k audit. Doing these steps will save you a lot of time and trouble:
- Make sure your documents are in order. Your 401k auditor will ask you to provide a lot of documents. You will need to provide plan documents, payroll data, and time-stamped communications. Having well-organized documents will save you a lot of time.
- Integrate payroll to prevent errors. You can avoid a lot of problems by integrating your payroll and record-keeping systems during your 401k deposit review.
- Work with professionals. You will need a good 3(16) fiduciary to handle the legal responsibilities of managing your 401k plan along with a competent third party administrator who helps you with designing the plan and the compliance around it.
How Long Does the Audit Take?
The 401k audit process usually takes about 6 to 8 weeks. It generally includes a short review and information request stage, 2 to 4 hours of information gathering interviews, a review of the preliminary report, and the final delivery of the audit report.
What to Do When the Audit Is Finished
Once your 401k audit is finished, attach the report to form 5500. This annual report, registered with the Department of Labor and the IRS, provides information on your 401k.
Form 5500 comes with 28 pages of instructions, that’s why it’s important to have a good team around your 401k plan to handle this annual requirement.