For more extensive information on auditing 401(k) plans, please visit our website dedicated to 401(k) audits at 401k-plan-audit.com.
A 401(k) plan is sometimes called a “cash or deferred arrangement” or “CDA” but is popularly known by the IRC Section “401(k)” that pertains to it. A 401(k) plan allows participants to contribute a portion of their compensation to the retirement plan without being taxed on the contributed amount. An account is created for each participant which will track the contributions, distributions, investments, gains and losses. A 401(k) plan may be part of a profit sharing or stock-bonus plan and may incorporate a thrift or savings plan where participants may make contributions to the plan with after-tax dollars.
401(k) plans are subject to ERISA and must file a form 5500 with the IRS and DOL. Form 5500 generally requires plans with 100 or more participants (subject to the 80-120 participant rule) to attach separate audited financial statements and certain supplemental schedules.
A 401(k) plan audit may qualify to be a limited scope audit if the trustee or custodian of the plan assets certifies as to the accuracy and completeness of the information submitted to the auditor. The limited scope provision only applies if the trustee is a bank, insurance carrier or similar institution that is federally or state chartered and is regulated, supervised and subject to periodic examination by a state or federal agency. A limited scope audit allows a plan administrator to instruct the auditor not to perform any auditing procedures with respect to investment information.
The auditor of an employee benefit plan must be familiar with ERISA, tax, and DOL laws and regulations and they must be familiar with special requirements of 401(k) plans such as:
- Non-discrimination tests
- Late remittance of contributions
- Prohibited transactions
- Limited scope certifications
- Required supplemental schedules
- Plan tax status
- Investment allocations
- Participant eligibility
- SOC reports
Kevin D. Smith, CPA, PLLC has the knowledge, proficiency and competency to perform an efficient and effective audit which will stand up to the scrutiny of the DOL.