Whether your organization has had a 401(k) plan in place for years, or you are just putting one into place, you know all about the seemingly endless string of documentation and regulatory requirements that hang over your plan like a dark cloud.
Between the Department of Labor and the Internal Revenue Service, there is no shortage of regulations that rule the world of employee benefit plans. If your plan has 100 or more participants, the DOL requires you to have an annual plan audit.
Choosing the right auditor for your 410(k) plan is essential for safeguarding your plan and avoiding penalties imposed by the DOL.
While the DOL’s criteria for selecting a qualified employee benefit plan auditor remain the same since we last reported on it in 2015, there are a few more points to consider when you choose an audit firm for your 401(k) plan, or for that matter, your 403(b), profit sharing, defined benefit, and some other types of plans.
1. Your 401(k) Plan Audit Is Not JUST an Audit
There are tax rules, too. Even though the employee benefit plan itself is tax exempt, there are often tax related issues such as unrelated business income tax and limits on executive compensation that are considered when determining contributions.
And just because your CPA firm audits your organization’s financial statements, it doesn’t mean they are equipped to also audit your 401(k) plan. Yes, some firms are qualified to do both kinds of audit work, but financial statement audits and employee benefit plan audits require different skill sets. While some auditors are qualified to do both, not all audit firms should do both.
2. The DOL Is Watching – Closely
The DOL has released several reports over the years that give less than glowing reviews of 401(k) plan auditors. One of those studies revealed that the DOL found “major deficiencies” in a staggering 39% of 401(k) plan audits. It’s not surprising that the vast majority of those deficiencies were found among audit firms that only perform one or two employee benefit plan audits per year.
3. The Price for a Botched 401(k) Plan Audit Can Be High
Substandard audit work can result in penalties against the plan sponsor by the DOL. Plan administrators can incur penalties of as much as $50,000 for audit failures. Needless to say, this puts an unnecessary financial strain on your organization.
Hiring a quality employee benefit plan audit firm will help reduce the likelihood of penalties. Our recommendation is to work with an audit firm that is a member of the American Institute of CPA’s Employee Benefit Audit Quality Center. Those firms have gone through extensive training and have current knowledge of the professional standards, rules and regulations associated with employee benefit plans. You can look up member firms here by state or by name.