401k Audit

How can you ensure that you’re choosing the right firm for your 401k audit? How can Froehling Anderson provide value to your operations? Here, two of Froehling’s Certified Public Accountants answered questions about the 401k process. We combined some of the answers to give you the best insight. 


What is the purpose of a 401k audit?

Typically, a 401k audit is performed to ensure that the plan sponsor is compliant with the audit requirements of the plan. However, an audit can also be performed in order to potentially identify operational errors or prohibited transactions. This would result in corrections, allowing the plan sponsor to be in compliance with the plan documents. 


Why does the plan need an audit?

A 401k plan is first required by the Department of Labor to be audited when it has 120 or more participants and eligible participants as of the beginning of the plan year to file a 5500. After the first year audit, the plan is required to be audited when it has 100 or more eligible participants as of the beginning of the plan year. These are considered to be “large plans.” However, there is one exception to this rule: the 80-120 rule. This rule allows a plan that has between 80 and 120 participants as of the first day of the plan year to file form 5500 in the same category (“large plan” or “small plan” as they did in the prior year form 5500). The number of eligible participants is determined by your plan’s adoption agreement and should be reviewed carefully.

In addition, you can have your plan audited in order to assess the plan sponsor’s control environment, improve processes and internal controls, and potentially identify operational errors or prohibited transactions. 


How does the timing of year-end reporting come into play?

The final 401k audited financial statements and reports need to be attached to the filed form 5500. Form 5500 is due July 31st each year. However, you can file form 5558 to extend the filing deadline to October 15th.  To conduct the audit, we need an audit package which is initiated when a census is sent to the plan’s TPA. The audit package is usually needed two to three weeks prior to fieldwork to allow enough time for us to make selections and the plan administrator to pull the necessary documentation.


When is a 401k plan required to be audited? How does your process work?

Once the plan has over 100 members and eligible members — which includes members who are eligible but not participating and terminated employees who still have money in the plan — an audit is required by the Department of Labor (DOL) to file a 5500. 

Our process is to obtain the audit package, census, and any updated plan documents from the plan administrator so we understand the plan and its internal processes. We then perform an assessment on the plan to determine areas of risk and design our testing. Then, we use the audit package and census to make selections for the testing outlined in our audit programs. From there, we send out a client assistance letter outlining all the information required from the plan administrator. If possible, we have the plan administrator upload those documents to a secure file share. Next, we do the majority of the work in our office, draft the financial statements, and compile any open questions. Lastly, we go to the office of the plan administrator to conduct fraud interviews and clear up any open items.


Why should you choose Froehling Anderson as your auditor?

Froehling Anderson has experienced CPAs who are familiar with the 401k industry and have extensive knowledge of ERISA, IRS, and DOL regulations, as well as the various other aspects of 401k plans. We ensure that we are always up to date on 401k requirements and we continually review our processes for efficiency. Our staff are also very personable, easy to work with, and professional.


How can our employees benefit from a 401k audit?

Your employees can rest assured that the plan is in compliance with all applicable laws and regulations. In addition, a 401k audit gives employees peace of mind that processes and administration of the plan are being professionally reviewed by a third party. 


If you have any more questions, please call Froehling Anderson today to receive expert assistance from our accountants and advisors.