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    Preparing for a 401(k) Audit: Yes, They Really Do Exist

    In business, the word ‘audit’ tends to send chills down the spine and upset the stomach. But did you know that if your company offers a retirement plan to your employees, your Plan Sponsor—party designated to administer a retirement plan, usually a company—should be conducting a plan audit?

    That’s right; it’s that time of year for 401(k) audits to begin for Plan’s who have over 100 eligible participants at the beginning of the plan year. Now would be a great time for Plan Sponsors to check in with your Plan’s record keeper to see if they have a general audit package they can prepare for you for your audit.

    Why is it important to have this audit completed?

    The greatest reason is that if a Plan Sponsor does not conduct an internal audit, they will not be able to complete an Annual Report, which is required for submission, thanks to the Employee Retirement Income Security Act of 1974 (ERISA). The annual report is filed using what’s known as a Form 5500. Once filed, the report is sent to the Internal Revenue Service (IRS) and the Department of Labor (DOL). If the form is not completed and filed there are can be late fines from both IRS and DOL amounting from $25 to $1,100 per day, respectively.

    If your Plan Sponsor or administrator does not have a general audit package, here are some items you can ask for from your record keeper to help you get started:

    • Record keeper Annual Statement

    • Trustee Annual Statement (if your record keeper is not a Trustee)

    • Census Report

    • Report reviewing contributions, distributions, fees, loans (if applicable) for the year

    • SSAE 16 (formerly SAS70) 

    • Form 5500

    Your auditor may request other documents but the information provided above will help you be ahead of the game when your audit begins. This information will be used by the auditor to determine if the Plan Sponsor is running the plan in compliance with the terms of the plan document, identify areas of improvement, and any errors that need to be corrected. When filing your Form 5500, you will also need to include the audited financial statements and auditors report to the Department of Labor (DOL).

    If your Plan Sponsor or broker hasn’t reached out to you about your 401(k) plan audit, consider making a call to inquire. At the end of the day, you want a plan administrator that keeps you and your employees’ interest at heart.

    If you would like to speak with one of our advisors about your 401(k) Plan, click here to meet our team and schedule an appointment.

    This post was originally featured on SWBC's BusinessHub blog.

    Reuben Escobedo

    Reuben joined SWBC in October of 2014 as a Retirement Plan Specialist with Human Resources. He supports and administers the SWBC 401(k) Profit Sharing Plan and SWBC Non-Qualified Deferred Compensation Plan. Prior to coming to SWBC, Reuben was at American Funds for 14 years. His last 6 years with American Funds were spent as a Relationship Retirement Coordinator where he managed up to 81 401(k) plans that totaled $500 million in assets. Reuben has been in the Retirement Business since 2000.

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