SC&H Group Blog: "Expertise Beyond the Numbers"

401k Audit Requirements & 10 Common Mistakes To Avoid

With changing regulations and increased emphasis on particular aspects of reporting and fiduciary responsibility, proper audits of employee benefit plans are increasingly important.

New ERISA ( Employee Retirement Income Security Act) regulations mandate that  benefit plan administrators submit annual reports to the Department of Labor.  The new regulations require these reports include a Form 5500 Annual Report and typical financial statements.

Accurate and timely completion of employee benefit plan (EBP) audits and establishing effective controls for benefit plan administration, have become mainstream tasks in fiduciary management.

Contact SC&H Audit services today if you have questions or think you may need an audit.

Don’t Rely on Internal Audits

Many companies rely on internal employees to maintain employee benefit compliance for their plans. However, small and middle market companies tend to be more vulnerable with regards to compliance as many do not have the internal expertise to address compliance with plan provisions or keep up with changing ERISA regulations.

Regrettably, many 401k audit requirements are missed  by 401(k) plan administrators and go unnoticed until the Internal Revenue Service (IRS) or Department of Labor (DOL) audits or examines a plan.

To prevent any unwanted surprises, the IRS provides a 401(k) Plan Fix-It Guide to ensure quality procedures.  The 401k Plan Fix It checklist details the top 10 most common mistakes made by 401k plan administrators.

Are Your Benefit Plan Audit Procedures Up to Snuff?

SC&H Group has created an easy-to-understand paper to help walk you through this guide so you can keep up with any changing ERISA regulations and avoid a DOL audit.

Here’s a taste of what you’ll find:

Issue 1: Plan documents are not updated to reflect tax law changes

Ever heard of the HEART Act or the Pension Protection Act? How about the required amendments to Sections 415 and 401(a)(35)? The IRS frequently issues revenue rulings and other pronouncements that require plans be amended to accommodate the applicable tax law changes.

For example, in response to Hurricane Sandy, the IRS provided for special rules for loans and hardship withdrawals resulting from losses suffered during the hurricane. Plan sponsors should consult with the plan’s recordkeeper to make sure the plan has been properly amended.

Issue 6: Eligible employees have been excluded from participating in the plan.

Plan documents are very specific on eligibility requirements and effective dates for participant entry into a plan. Plan sponsors with a manual enrollment process or a small HR function may accidentally exclude an eligible employee from enrollment into the plan or may not provide adequate notice for the employee to enroll him or herself.

As part of the hiring process, a plan administrator should ensure an employee’s eligibility has been properly determined and that necessary communication has been made to the employee and plan recordkeeper. If your plan has an automatic enrollment provision, employees not wishing to participate should be required to sign an opt-out form to prevent future administrative issues.

Issue 10:  Hardship withdrawals are not administered properly.

Hardship withdrawals are permitted in some plans based upon provisions of the plan document in extreme cases of financial hardship for participants. The IRS provides several specific examples of permissible safe harbor “hardships”; however, the ultimate decision to permit a hardship withdrawal lies with the plan administrator.

The plan administrator should always sign off on the decision to accept a hardship withdrawal and should request documentation of the financial hardship to maintain in the participant’s personnel file in order to have justification for the withdrawal.  

Also find tips on things like:

  • Participant loans
  • Salary deferral
  • Employer contributions
  • Non-discrimination testing

Acknowledging these 401k audit requirements helps prevent these common mistakes. may seem burdensome, however, once the proper policies and quality audit procedures are in place, management of the plan becomes much more effective and efficient.

Read the full paper to gain more insights in how you can avoid any unwanted surprises from the IRS.

SC&H Group assesses risks for over 125 employee benefit plans annually – including 401(k), 403(b), defined benefit, and health and welfare plans – and assists clients with many of the common difficulties in administering employee  benefit packages.

If you have questions or think you may need an audit, please contact SC&H Audit services today.  Consider us your Employee Benefit Plan Consultants.

Access Your Guide to Keeping Up with Regulations and Avoiding Audits

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