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401(k) & Pension Audits

“We Believe in being the Firm Coveted by Clients in the Markets We Serve and Employees Aspire to Work for.”

—Doug Walters

401(k) Audit Requirements – FAQ’s

Walters & Associates, CPAs offers a free, no obligation consultation to answer any questions you may have about audit requirements for your companies benefit plan.

What is the cost of a 401(k) Audit?

We believe in affordable, transparent pricing with no hidden fees. For the majority of 401k & pension plan audits are flat-rate pricing. In a few cases, there could be additional fees which we will clearly communicate to you prior to any client engagement. Our goal is to provide you with a 5-Star audit experience, deliver you great value, and make your job easier.

Walters & Associates, CPAs is a registered and peer-reviewed certified by the PCAOB so we can also handle 11K Full Scope Audits.

What are the 401(k) audit requirements and due dates?

Employers with 100 or more employees who are eligible to participate at the beginning of a year are required to have their plan audited.

The filing deadline for the Form 5500 is the last day of the seventh month following a 401(k) plan’s year-end (July 31 for calendar-year plans).

Can the Form 5500 filing deadline be extended?

Yes. An employer can apply for an automatic 2 ½ month extension of time to file their Form 5500 by filing a Form 5558 (extending the filing deadline to October 15 for calendar-year plans). Form 5558 must be filed before the due date of the Form 5500.

How long does a 401(k) & pension audit take?

The industry standard for CPAs completing the 401(k) audit process is 6-8 weeks. This generally includes a short review and information request stage, 2-4 hours of information-gathering interviews, a client review of the preliminary audit report, and the final delivery of the audit report.

What information and documentation do I need to send you?

We will send you a document at the beginning of the audit process which will list the information we will need to start and successfully complete your audit. We also typically work with your plan administrator to securely access any additional required information. Our job is to make your job easy!

What sets our firm apart from others?

  • Timely and meets all regulatory requirements
  • Our audit team has extensive experience performing full-scope and limited-scope audits for defined benefit plans (pension plans) and defined contribution plans (401k Plans and 403(b)) plans. We also have experience serving plans with 11-k filing requirements.
  • Flat fees with no hidden cost
  • 100% remote, no hassle or office disruption
  • The DOL has said that lack of experience in benefit plan audits compromises the quality of the audit, and a properly performed benefit plan audit requires specific skills and knowledge
  • Our audit is seamless and non-intrusive. We will work directly with the plan’s third-party administrator.
  • We are members of American Institute of Certified Public Accountants and the Employee Benefit Plan Audit Quality Center
  • We are licensed in most states
  • The knowledge our auditors bring can help correct compliance and operational issues and avoid future mistakes
  • The Plan sponsor receives a management letter and various other communications to correct areas of noncompliance, strengthen internal controls and improve processes. An experienced auditor will be able to identify operating deficiencies, prohibited transactions, and non-compliance issues.

Regulatory requirements

  • Administrators of benefit plans subject to ERISA must file a form 5500 with the IRS and Department of Labor (DOL) each year
  • The filing is done through the DOL’s EFAST2 filing system
  • Plans subject to ERISA generally include defined benefit and defined contribution plans (401(k), 403(b), and ESOPs) sponsored by non-governmental organizations, Welfare benefit plans, Health Reimbursements Accounts (HRAs), and Flexible Spending Accounts (FSAs)
  • Small plans are plans with fewer than 100 eligible participants and large plans are plans with 100 or more eligible participants at the beginning of the plan year
  • The Employee Retirement Income Security Act of 1974 (ERISA) requires annual audits of plan financial statements by an independent qualified public accountant of plans subject to the provisions of ERISA. Audited financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and certain supplemental schedules are required to be attached to the form 5500 filing when the plan is considered a large plan (has over 100 participants at the beginning of the plan year).
  • One exception to that rule is the 80-120 rule, which states that if the plan has between 80-120 eligible participants at the beginning of the plan year, it may choose to file the same way it did in the previous year (as a large or small plan). Filing as a small plan would allow the plan to file form 5500 without the audit requirement. However, in subsequent years, the threshold is 100 eligible participants needed to require an audit.
  • Another exception to that rule is the Short Plan Year Rule, which states that if a benefit plan subject to ERISA operates for seven months or less in a plan year, then the audit can be delayed until the following year. However, the requirement for the audit is not eliminated if the plan has 100 eligible participants or more at the beginning of the plan year, just delayed. This rule generally applies to plans that are created during a plan year, plans that merged with another or plans that terminate during a plan year. If the audit is deferred for the short plan year and the plan’s eligible participants drop below 100 for the subsequent plan year, the audit is still required.
  • Eligible participants include not only those who are contributing to the plan but also those that are able to do so as defined in the plan document but choose not to, such as employees of the plan sponsor that are of age to contribute. It also includes terminated or deceased employees that still have funds remaining in the plan on the first day of the Plan year.
  • The SEC requires employee stock purchase, savings and similar plans with interests that constitute securities registered under the Securities Act of 1933 to file a Form 11-K pursuant to Section 15(d) of the Securities Exchange Act of 1934. Plans that are required to file Form 11-K are deemed to be issuers under the Sarbanes-Oxley Act of 2002 (SOX) and must submit to the SEC an audit in accordance with the auditing and related professional practice standards promulgated by the Public Company Accounting Oversight Board (PCAOB).
  • Small Plans generally qualify for the small plan audit waiver but do require audits in certain cases. If 5% of the plan’s assets are considered non-qualified (defined below) any person who handles the non-qualifying assets must be covered by a fidelity bond equal to or greater than 100% of the value of all non-qualified plan assets and the bonds must comply with ERISA bonding rules. The plan must also include certain additional information in its Summary Annual Report (SAR). Furthermore, if a participant or beneficiary requests copies of statements the plan receives from the institution holding the plans assets or evidence of a required fidelity bond, the administrator must furnish this information free of charge. If the plan does not meet these requirements, an audit will be required.
  • Qualifying plan assets are defined to include (1) assets held by certain regulated financial institutions (i.e., banks, trust companies, savings and loan companies, credit unions, licensed insurance companies); (2) shares issued by a registered investment company (mutual fund shares); (3) investment and annuity contracts issued by licensed insurance companies; (4) qualifying employer securities; (5) participant loans meeting ERISA’s loan requirements, regardless whether they have been deemed distributed; and (6) assets self-directed by the participant or beneficiary so long as the participant or beneficiary is furnished, at least annually, a statement from a regulated financial institution describing the plan assets held and the amount of such assets.
  • The form 5500 along with your audited financial statements should be filed together 7 months after the plan’s year end and a 2 ½ month extension can be requested. For plans with December 31st year ends, October 15th is the due date when the extension is filed.
  • The plan auditor must be licensed in the state the plan is based out of
  • Failure to file or late filings come with severe penalties from both the DOL and IRS and can start to add up quickly

Limited-scope vs. Full-scope Audits

  • Full-scope audits require all of the major account balances to be audited, including full testing of investments and related supplemental information. An audit opinion will be issued as to whether the financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP).
  • Limited-scope audits do not require auditing of investment information prepared and certified to by a qualified institution. All other balances and transactions are subject to the same audit procedures as the full-scope audit. A qualified institution is either a bank or an insurance carrier that is acting as the trustee or custodian of the Plan assets. The institution must also be chartered and be regulated by state or federal agencies.  If plan management instructs the auditor to perform a limited scope audit, the auditor’s report will include a disclaimer of opinion on the financial statements that states that because of the significance of the information the auditor did not audit, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, the auditor will not express an opinion on the financial statements. In addition, the auditor’s report includes an other-matter paragraph that disclaims an opinion on the supplemental schedules and a report on the form and content of the supplemental schedules in compliance with DOL rules and regulations.
  • Investment and broker companies generally are not qualified to certify plan assets, and therefore a full-scope audit would be needed

Key areas to audit

  • Participant eligibility
  • Participant Loans
  • Participant data and allocations
  • Benefit Payments
  • Prohibited transactions
  • Late remittance of participant contributions
  • Allocation of investments
  • Non-discrimination testing
  • Hardship rules
  • Eligible compensation
  • Test of transactions
  • Rollovers into the plan
  • Plan follows the plan document and subsequent amendments
  • Party-in-interest transactions
  • Liabilities and plan obligations
  • Administrative expenses

Common Plan Deficiencies

  • Ineligible compensation being included, or eligible compensation being excluded in deferral and match calculations
  • Ineligible participants allowed to participate in the Plan
  • Late remittance of employee deferrals to the Plan

Common Audit Deficiencies

  • Deficient or no audit documentation for key areas of interest including participant eligibility, investment allocations, benefit payments, employee and employer contributions, forfeitures and timeliness of remittance of employee contribution.
  • Misinterpretation of limited scope audit exception
  • Failure to identify prohibited transactions
  • Failure to provide required supplemental schedules
  • Lack of quality internal review
  • Lack of technical training and knowledge
  • Not fully understanding the plan terms
  • Relying too heavily on service auditor’s reports
  • Improper audit planning

Different types of Plans we Audit

  • 401(k) plans
  • 403(b) plans
  • Pension Plans
  • Profit-sharing plans
  • Savings plans
  • Employee Stock Ownership Plans (ESOPs)
  • SEC 11-k filings
  • Health and welfare benefit plans

Have more questions? Contact us today! We are here to help.

We Provide 401(k) & Pension Audits Nationwide.
Call (941) 756-0700 or email us for more information.