When is a 401(k) Plan Audit required?
Generally, a plan must be audited when it has more than 120 eligible plan participants, including those who have terminated with a remaining vested balance in the Plan. Effective with the 2023 Plan Year, updated regulations now require an annual Plan Audit for Plans with at least 120 participants with an account balance as of the beginning of the Plan Year. A new plan with at least 120 participants with an account balance at the end of their first Plan Year will be required to complete a Plan Audit for their first year.
Audits must be completed so that the Form 5500 may be filed seven months after the end of the month the plan year ends, with an option to extend the deadline for two and a half months. A calendar year-end plan, for example must complete their audit and file their Form 5500 by July 31 of the following year, with an option to extend through October 15.
What is involved in completing the annual Plan Audit?
An audit will review two major areas:
- Compliance - Annual Compliance Testing will be reviewed in addition to Company Policies and Procedures to ensure the Plan Sponsor has implemented and followed their Plan Provisions to meet all IRS and DOL requirements in addition to meeting their participant needs.
- Financial reporting - to determine the accuracy of the financial information as reported on Form 5500 and plan financial statements as well as required Plan Notifications.
What steps must be taken to prepare for the annual Plan Audit?
Scheduling the annual Plan Audit:
- Reach out to your Plan Auditor to schedule your Plan Audit early in the year following the Plan Year to be audited.
- The Auditor will generally schedule a day to meet with the Plan Sponsor to gather materials, which can be in person or virtual. As the Auditor reviews the documentation gathered, they will reach out for additional documentation and additional reviews of Plan Sponsor Policy reviews.
- Jocelyn Pension Consulting will prepare and provide the Financial Statements, Trust Reconciliation, Form 5500 and Compliance Reports to be available between May 1 – June 1.
- Once the annual Plan Audit is complete, Jocelyn Pension Consulting will assist the Plan Sponsor with filing the Form 5500 and related schedules with the DOL.
Jocelyn Pension Consulting will assist with preparing the following documentation:
- Plan Documents
- Certified Financial Statements
- Annual Trust Reconciliation
- Annual Form 5500 and related schedules
- Distribution/loan documentation for Plan Participants
- Tax Forms for Plan Participant Distributions
- SOC 1 reports from Recordkeeper and Custodian
In addition, the Plan Sponsor will need to provide:
- Annual Payroll Register and payroll details
- Annual Census
- Employee documentation, hiring and termination records
- Additional documents as requested by Plan Auditor
Documents needed to complete annual Plan Audit:
- Current Plan Documents, including Adoption Agreement, Basic Plan Document and Summary Plan Description. Any amendments in effect for the Plan Year under audit, as well as subsequent Plan Years.
- Current IRS determination or opinion letter for the executed plan document
- Copies of required annual notices
- 401(k) administrative/investment committee minutes for the plan
- Executed board minutes as they pertain to the plan
- Service agreements with custodian and recordkeeper
- Copy of the plan’s ERISA bond insurance
- SOC 1 reports from recordkeeper and custodian
- Any other agreements or significant correspondence related to the plan
- Annual census and Payroll Registers