At Cook CPA Group, we are frequently contacted by business owners who have questions about what to expect when planning the timeline for a 401(k) audit in California. Unfortunately, it is difficult to give a precise answer without knowing specific information about your company, as the audit timeframe varies on a case-by-case basis depending on factors like the size of your business, the complexity of the audit, and the extent to which you have already compiled the necessary forms and documents. However, regardless of these or other variables, you can increase the speed of the audit by consulting with an experienced business accountant. If you are a business owner who requires assistance with an employee benefit plan audit in the Roseville or Sacramento area, contact Cook CPA Group for a free consultation about our 401(k) audit services in California.
When Do You Need a 401(k) Audit?
Generally, a business that operates in the state of California is subject to mandatory 401(k) auditing requirements if 100 or more employees participate in the plan, which classifies the 401(k) as a “large” plan. However, several exceptions can arise depending on factors like the duration of the plan year and the exact number of participants. For example, it may not be necessary to audit the company’s 401(k) plan if both of the following statements apply to your business:
- Last year, your plan was categorized as a “small” plan, meaning there were fewer than 100 participants.
- There are currently at least 101 participants, but no more than 120 participants. (If there are more than 120 participants, the plan is categorized as a large plan and therefore subjecting to auditing requirements.)
401(k) Audit Deadlines and How to Get a Time Extension
Once you have determined whether your business is subject to 401(k) audit requirements, the next step is to identify important calendar dates, which will help to prevent you from inadvertently missing deadlines. Remember, failure to meet the 401(k) audit deadline can subject you to substantial penalties, which are imposed by the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). Depending on the duration and severity of the noncompliance, these penalties could needlessly cost your business thousands of dollars. Therefore, it is crucial to ensure that the audit is conducted and the necessary forms are submitted in a timely fashion.
Plan administrators are typically required to file an annual report, which is generally prepared using Form 5500 (Annual Return/Report of Employee Benefit Plan) or one of its variants, such as Form 5500-SF (Short Form Annual Return/Report of Small Employee Benefit Plan), on the overall health and status of the plan. In most instances, the due date for this report is the final day of the seventh month of the year, or in other words, July 31. However, if your plan is based on the fiscal year as opposed to the calendar year, the deadline may fall on a different date. If you need additional time, you can obtain an extension by filing Form 5558 (Application for Extension of Time to File Certain Employee Plan Returns).
How Long Does it Take to Audit a 401(k) Plan?
To reiterate, the 401(k) audit timeline varies from business to business. However, generally speaking, business owners can expect the process to require anywhere from several weeks to several months for completion. In most cases, a timeline of six to eight weeks is sufficient to conduct the audit.
With the July 31 deadline in mind (unless your plan follows the fiscal year, in which case the deadline will vary as previously mentioned), it is prudent to begin preparing to engage an auditor no later than May, which will you give you some cushioning to prepare thoroughly without being rushed at the last minute. However, there are actions you can take even earlier to facilitate the audit process, such as compiling and organizing the supporting documents that you will need to complete the audit.
You should also confirm the deadlines for any retirement-related tax forms that may need to be filed with the IRS, such as Form 945 (Annual Return of Withheld Federal Income Tax), which is generally due in February, and which is used to report federal income tax that was withheld from non-payroll payments, including 401(k)s. If you have any questions, no matter how small, it is never too early to contact a small business accountant for assistance.
Employee Benefit Plan Audit Services for Businesses in Roseville and Sacramento, CA
If you wish to avoid expensive penalties from the IRS or DOL, it is essential to ensure 401(k) plan compliance through regular auditing. The audit must be conducted by a financial professional who is certified to work in your state.
With offices conveniently located in Roseville to serve business owners throughout the Sacramento area, the business tax and accounting professionals of Cook CPA Group are certified to provide 401(k) audit services for small, mid-size, and large entities in California, including corporations and partnerships. We can efficiently provide you with detailed, meticulous financial guidance while helping you comply with the law. To discuss a 401(k) plan audit or ERISA employee benefit plan audit for your business, contact Cook CPA Group online, or call our Roseville accounting firm at (916) 724-1665 for a free consultation.