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Offering your employees a 401(k) is a great perk but comes with a fiduciary responsibility to protect the plan’s assets. This includes ensuring the plan adheres to rules and regulations established by the Employee Retirement Security Act (ERISA), which may require a 401(k) audit. Given the complexities of 401(k) regulations, working with a Certified Public Accountant is essential.  

Cody Ravalli, CPA leverages his comprehensive knowledge of applicable ERISA rules to perform 401(k) audits for businesses in the New York City area and around the country. When you work with Cody, he will determine whether your plan is subject to an audit and, if so, ensure compliance with audit requirements and best practices.  Call today to schedule an appointment.

Does My 401(k) Plan Need an Audit?

401(k) plans, like other retirement plans, are subject to audits to ensure compliance with relevant regulations and to safeguard the interests of plan participants. The following types of 401(k) plans are typically subject to audits:

  • Large plans – Generally, 401(k) plans with 100 or more eligible participants at the beginning of the plan year are subject to an annual audit. This threshold is set by the ERISA and the Department of Labor (DOL).
  • Small plans – Smaller 401(k) plans (those with fewer than 100 participants) are exempt from the annual audit requirement under ERISA, but may still be subject to audits if they are deemed to be at risk for noncompliance or if they fail to meet certain safe harbor requirements.
  • Plans with prior audit issues – Plans that have previously undergone audits and were found to have compliance issues may be required to undergo subsequent audits to ensure that the identified problems have been rectified.
  • Plans under investigation – A 401(k) plan that comes under scrutiny by the IRS or the DOL due to complaints or suspected violations may be subject to an audit as part of the investigation.
  • Voluntary audits – While not mandatory, some employers may choose to have their 401(k) plans audited voluntarily to ensure compliance, transparency, and fiduciary responsibility, even if they do not meet the 100-participant threshold.

Specific audit requirements and thresholds can change over time due to regulatory updates, so plan sponsors should consult an experienced CPA to determine if their plan is subject to an audit. 

The 401(k) Audit Process 

Navigating the intricate terrain of a 401(k) audit requires attention to detail, and compliance with established guidelines. As a CPA, Cody Ravalli conducts an initial audit review to identify key risk areas and determine the audit’s scope. This step sets the foundation for a systematic examination, involving the following steps: 

  1. Testing and sampling – To ensure the plan’s compliance with ERISA regulations, your CPA will select a sample of plan transactions and participant accounts for in-depth scrutiny. This sampling provides a representative view of the plan’s operations.
  2. Data validation – Accurate data is paramount. Cody will meticulously cross-reference financial data with participant records and plan transactions to verify their accuracy and investigate any discrepancies. 
  3. Internal control assessment – A 401(k) audit involves an assessment of the plan’s internal controls, examining how transactions are initiated, approved, and recorded. This evaluation helps identify weaknesses or potential areas of fraud.
  4. Documentation review – All relevant plan documents, including the plan document itself, summary plan descriptions, and participant communications are reviewed to ensure they align with regulatory requirements.
  5. Participant testing – As part of the audit, Cody will verify that contributions are properly calculated, deposited, and allocated to participants’ accounts. He will also assess the accuracy of participant loans, withdrawals, and distributions.
  6. Compliance assessment – A 401(k) auditor evaluates the plan’s compliance with ERISA’s fiduciary standards, nondiscrimination rules, and reporting requirements.
  7. Reporting – After a thorough examination, Cody will provide a detailed report of his findings. This report includes any identified compliance issues, recommended corrective actions, and an opinion on the overall compliance of the plan.
  8. Regulatory filing – Cody will assist with preparing a filing Form 5500 with the IRS to assure compliance with applicable regulations.

With Cody Ravalli as your 401(k) auditor, you can expect timely solutions to ensure you meet your fiduciary responsibilities and achieve your plan objectives. 

Common 401(k) Compliance Issues and How to Resolve Them

Companies frequently encounter several common compliance issues during a 401(k) audit.  One of the most prevalent is the failure to adhere to the annual contribution limits set by the IRS. It’s crucial for companies to continually monitor contributions to ensure that both employee and employer amounts don’t exceed the yearly maximums. 

Another typical oversight is the neglect of timely deposit of employee deferrals. According to the DOL, these contributions should be deposited into the plan as soon as they can be segregated from the company’s general assets but no later than the 15th business day of the following month.

To effectively address these issues, companies need to instate rigorous monitoring systems. For instance, implementing automated software that tracks contributions in real time can significantly reduce errors associated with exceeding limits. Additionally, setting up automated reminders and checks can ensure timely deposits of employee deferrals. Training for HR and finance teams is also essential, so they remain updated on current regulations and understand the nuances of 401(k) management. Regular reviews, perhaps quarterly, can act as a proactive measure, ensuring the company remains compliant and any discrepancies are caught and rectified early on.

Why Choose Cody Ravalli?

When it comes to safeguarding your hard-earned assets and ensuring that your 401(k) plan is compliant, you need a professional to rely on. Cody Ravalli, CPA has partnered with a diverse range of clients, building a reputation for precision, reliability, and unparalleled expertise. He understands the intricate nuances of 401(k) regulations and stays ahead of industry changes to guarantee that your audit is not only comprehensive but also forward-looking. 

Ultimately, having an expert like Cody conduct a thorough audit can prove invaluable. An external review can offer a fresh perspective, highlight unseen issues, and provide tailored solutions to ensure long-term compliance and health of the 401(k) plan. By staying proactive and seeking expert guidance, businesses can mitigate risks, avoid costly penalties, and ensure the security of their employees’ retirement funds.

Contact An Experienced 401(k) Auditor Today

Your business is growing and so is your 401(k) plan. Contact Cody Ravalli, CPA today to get started on your 401(k) audit.