With the reporting deadline for employee benefit plans rapidly approaching, it is important to be familiar with the 401(k) audit compliance rules and to know the difference between an annual 401(k) audit performed by a CPA firm and an IRS or DOL 401(k) plan audit.

The Annual 401(k) Plan Audit
An annual 401(k) plan audit is conducted by an independent qualified public accountant and is submitted with the Form 5500 annual filing. The purpose of the audit is to ensure that the plan is operating in compliance with written plan documents, adhering to IRS/DOL regulations and reporting plan financial information accurately. This audit of plan financial statements is required for plans with 100 or more participants at the beginning of the plan year, which is defined as a “large plan”.

There are 2 exceptions for the “large plan” vs “small plan” requirement:

  1. 80-120 Participant Rule: If the number of participants reported is between 80 and 120 and a Form 5500 was filed for the prior plan year, you may elect to complete the return/report in the same category (“large plan” or “small plan”) as was filed for the prior return/report.
  2. Short Plan Year Rule: If the plan had a short plan year of 7 months or less for either the prior plan year or the plan year being reported on the Form 5500, an election can be made to defer filing the accountant’s report. If such an election was made for the prior plan year, the Form 5500 must be completed following the requirements for a large plan, including the attachment of the Schedule H and the accountant’s reports, regardless of the number of participants reported.

There are several factors to consider when choosing an independent qualified public accounting firm that will perform your plan audit. It is important to keep in mind that auditors should not only be certified by a state agency, but should also be familiar with ERISA, IRS and DOL regulations, as well as other requirements directly associated with employee benefit plans.

The IRS or DOL Plan Audit
A plan audit conducted by the IRS ensures that plans follow regulatory compliance requirements to maintain their status as qualified retirement plans. Although some plans are audited as a result of red flags from reviews of 5500 Forms, the majority of plans audited by the IRS or DOL each year are randomly selected. Plans that are found to have lapses in compliance can face penalties or even disqualification.

Plan sponsors should understand their fiduciary responsibilities and hire service providers that have internal processes to keep plans in compliance with IRS/DOL regulations. If your plan is selected for an audit, it is advisable to obtain representation from a qualified retirement plan specialist. If you are starting a new plan or switching to a new retirement plan provider, ask the new provider if they can, and will, represent you in the event that the plan is audited. Consider providers who have credentialed members on their team. ASPPA and NIPA are two industry organizations that provide training and credentialing like QKA, QPA, APA and APR. The IRS also licenses practitioners in the form of Enrolled Actuaries (EA) and Enrolled Retirement Plan Agents (ERPA). Most importantly, your provider should have experience working with the IRS and DOL.

At RPG Consultants, our expertise in consulting and compliance is evident by our impeccable track record with representing clients in IRS plan audits. Our clients are confident in our processes and assured by our commitment to providing the highest caliber of service. We have a dedicated team to conduct plan reviews and ensure that all plans adhere to IRS/DOL regulations. As part of our initial consultation process for prospective or new clients, we conduct a plan review to identify any significant operational failures or compliance issues. Many financial advisors and CPAs leverage our expertise to support client of theirs with current and/or potential IRS/DOL plan compliance issues. If we find that a plan is not in compliance, we can work with the plan sponsor to initiate and complete the IRS Voluntary Correction Program (VCP) to correct operational errors and implement new processes or procedures to ensure that the plan can maintain its tax-favored status and avoid failures in the future.

About RPG Consultants:
RPG Consultants is a CEFEX-Certified Recordkeeper and Third Party Administrator (TPA) for retirement and benefit plans. Our retirement plan consultants at RPG provide a full range of professional, administrative, actuarial and consulting services as well as in-house daily recordkeeping. We have a dedicated Compliance department to ensure that all our plans remain in compliance with legislative changes and IRS/DOL requirements. We offer true open architecture investment choices of any mutual fund family, ETF and managed strategy – with no revenue sharing. RPG Consultants is a “non-producing” TPA – we do not market or sell investments. We strictly provide value-added consulting, administration and recordkeeping for company benefit plans. For more information about our services, call 212-947-4800 ext 225 or email marketing@rpgconsultants.com.