401(k) Audits for Businesses and Plan Administrators

In today’s modern economy, much of the responsibility for investment and retirement savings is placed on the individual. Whereas pension plans were once a common fringe employment benefit, they are no longer. Today, workers and individuals are responsible for ensuring their future financial stability through wise investments. Recognizing this reality, many companies attempts to attract top-tier talent include benefits packages that offer 401(k) and similar individual retirement savings plans and accounts.

However, companies that offer a 401(k) or similar plans take on certain responsibilities and duties when offering certain plans. Identifying the type of plan, whether an annual audit is required, and carrying out a meticulous compliance audit can be essential avoiding penalties, fines, and other consequences of improper plan practices or procedures and mistakes.

When Is Annual 401(k) Reporting Due?

One of the responsibilities that attaches when a company offers a defined benefits plan like a 401(k) is reporting on the financial health and status of the plan. Generally, there is a requirement for pension and welfare benefits plan administrators to make an annual filing. The filing is typically due on the last day of the seventh month following the end of the calendar year. For a plan that comports with the calendar year, that means that the obligation to make an annual report is due no later than July 31. If your company’s fiscal year is different, your due date will vary. An extension is available through a filing of Form 5558.

Generally, the pan’s annual report should be made via Form 5500, 5500-SF, or 5500-EZ. The particular form an organization should utilize is determined by organization size. Typically, businesses and organizations with a plan covering 100 or more individuals will use form 5500. Businesses with less than 100 plan participants will use Form 5500-SF (Sort Form). Finally, single participant plans may utilize form 5500-EZ.

When Is an Audit of a Company 401(k) Plan Mandatory?

Whether a company or plan administrator is required to engage in a yearly plan audit also turns on the plan size. For plans having 100 or more participants at the commencement of the plan year, an annual 401(k) audit is mandatory. Furthermore, plans that are covered under ERISA are also required to provide certain annual reporting information via one of the forms discussed above.

The first step in determining whether your organization has an obligation to conduct an annual audit is determining the number of plan participants. Employees are generally considered a plan participant when he or she meets or the eligibility requirements set forth in the plan. One common eligibility requirement is that a certain worker has been employed for a set amount of time. The requirement may be defined in terms of the number of days or hours worked. If the plan has 100 or more participants on the starting date of the reporting period, then Section H of form 5500 becomes mandatory. Section H requires an audit of a 401(k) plan.

Are There Exceptions to the Annual 401(k) Audit Requirement?

For mid-sized companies that may hover around the 100 participant threshold, the mandatory 401(k) audit rule is balanced by the 80/120 participant rule. Under this potential exception to the audit requirement for large plans, a plan may file under the same classification (small plan, large plan, etc.), it used the previous year provided that the number of participants was between 80 and 120 individuals at the start of the plan year. Therefore, if your organization qualified as a small plan last year with 95 participants, the organization may continue to file as a small plan provided that the number of participants does not exceed 120 on the first day of the plan year. However, if there are 121 participants or more, the plan is now considered a large plan and an audit is required.

Work with 401(k) Audit CPAs in California

If your organization is required to complete a 401(k) audit for large organizations, it is essential that you work with financial professionals who are certified to perform such work in your state. If you are unsure if your organization needs and audit, it is prudent to call an accountant or CPA. Organizations that fail to satisfy all aspects of their reporting and audit obligations are subject to penalties.

If you have questions regarding your organization’s obligation to engage in an annual 401(k) audit, the CPAs and financial professionals of the Cook CPA Group can provide on-point guidance. If our services are right for your situation, you can expect a meticulous approach to your audit and actionable guidance. To schedule a free consultation at our Roseville accounting office, please call the Cook CPA Group at 916-724-1665.