401 k Audit is the evaluation or the analysis of the 401k plan. It is the process of the plan’s financial standing which is conducted by an independent but qualified accountant. The 401 k plan is a retirement plan in which the plan holder can invest some amount before the deduction of the taxes. The Audit is done on the plan to check the authenticity of the plan.
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1. 401 K Audit Template
2. 401 K Audit Checklist Template
3. 401 K Plan Audit Template
4. 401(k) Plan Self Audit Template
5. 401 K Audit in PDF
6. 401 K Plan Audit Example
7. 401 K Independent Audit Template
How Does the 401k Audit Works?
Step 1: The Design of the Plan and the Review of the Document
The first thing that the auditor wants to do is to get an in-depth picture of the complete plan. This may include:
- The design of the plan and the rules that are being followed.
- The operations and control of the 401k plan.
- The eligibility criteria of the people who want to invest in the plan.
- The financial data of the contribution made,
Step 2: Review Deposit and Participant -Level Sampling
The analysis is done and is reported in two different spreadsheets. The analysis is done on the benefit plan financial transactions and the employee plan participation. In the review, the deposit report focuses on the money that is deposited in the plan. The auditor looks for the transmission amount and the time.
Whereas in the participant level sampling the report focuses on the accuracy of the payroll, employee eligibility, and employment, calculation, transfer, and allocation of participant contribution, incoming rollover, distribution, 401(k)loans, payment or disbursement made by the plan.
Step 3: Closing of the Audit Procedure
After the completion of the audit, the auditor gives the plan administrator the audited financial statement and the report of the issue that was discovered. They also conduct an interview to know more about the plan’s internal control and the procedures.
What is the Objective 401k Audit?
The auditing is made mandatory by the Employee Retirement Income Security Act to make sure that the plan is running correctly. The objectives of the plan are:
- The first objective is to verify that the plan is compliant with the IRS (Internal Revenue Service) and the DoL (Department of Labor) Rules.
- To determine the information that is recorded in the plan’s Form 5500 and the 401(k) in the financial statement is accurate.
The two departments enforce the submission of the audit report. The ideas are that they want to make sure that the plan is in compliance with the regulations and is devoid of any mistakes that may affect the plan holder.
What are the Qualifications of the Independent Auditor?
The first thing that an organization needs to look into an auditor is to find a person who is familiar with the Employee Retirement Income Security Act, Internal Revenue Service. Department of Labor Regulations, tax and other requirements of the 401(k) plan. The independent auditor should also be a public accountant who holds a license certified by the state agency.
There are a few things the independent auditor needs to be familiar with:
- The testing should be non-discriminatory.
- The idea of participant eligibility.
- The allocation of the investments.
- SOC-1 reports that are prepared.
- The rules of hardship.
- The requirements of the ERISA.
- The idea of limited scope certification.
- The concept of the late remittance of contribution.
- The transactions that are prohibited.
- The safe harbor methods.
- The required supplemental schedules that are required in the audit process.
- 80-120 participant rules.
Why is 401(k) Audit Required?
Audit of any plan or process is required to make sure that there is no issue with the plan and the plan will run smoothly without any errors. Therefore in the case of a 401k audit, it is extremely necessary that you perform an audit with the help of an independent auditor to check the plan so that the investors are not hampered.
The idea behind auditing the 401k plan is that it involves money and there should not be any error or issue that can create a small or a big problem. With the auditing, everything is clear a report is prepared based on which all the necessary changes are made and the errors are fixed.
Therefore for every 401k plan, it is necessary that the audit is performed that too by an independent public auditor to avoid any kind of biases and discrimination. This ensures that the participants can avail of the benefits based on the eligibility criteria and not influenced by a biased attitude.