Who is required to have an audit of their employee benefit plan?
The Employee Retirement Income Security Act of 1974 (ERISA) requires annual audits for companies that have 100 or more eligible participants in their 401(k) plan. If this sounds like your company, let’s make sure you are prepared for your upcoming audit.
How to prepare for an audit
It is important to be ready for an audit before your accountants arrive for fieldwork. The more organized you are, the quicker the process and more affordable it will be. Accountants are paid by the hour, so it is in your best interest to have everything organized and ready for an efficient audit.
What you should have ready:
- An electronic version of your plan document along with any changes to the document.
- Know what your plan’s eligibility requirements are. Maintain a list of upcoming eligible employees to ensure you notify them of their upcoming eligibility. Regulators hold you responsible for notifying employees of when they can enroll into the plan.
- Retain and secure records for all of your employees:
- Hire date
- Date of birth
- Social security number
- Date they became eligible and support showing you communicated this to the employee
- Employee signed documentation showing employee opted out of the plan
- Their deferral election rate and investment allocations
- Changes to their employee’s deferral election rate or investment allocations and the date of the changed elections
- Be knowledgeable of the plan’s definition of compensation – it may exclude different types of pay, i.e. bonus. Any special elections made by participants should be documented and retained.
- Termination date
- Rehired date
- The Third Party Administrators (TPA) audit package.
- A census of all the employees.
- Keep quarterly meeting minutes about plan decisions and investment monitoring.
- Have a written walk through explaining the key procedures and individuals who run the plan. Think of this an instruction manual explaining you and your teams’ key tasks in relation to the plan. The walk through should explain how employee eligibility is tracked, the procedures for a change in election or allocation, the different responsibilities of the employee benefit administrative team, and if the investments are certified by the custodian. This will help the auditors get a better understanding of your plan.
If you feel that your company’s plan is encroaching 100 or more eligible participants, or have already passed those limits, then it is time to reach out to Corrigan Krause’s employee benefit audit team!
To learn more about how to prepare for an efficient and effective employee benefit plan audits, or to learn if you received an efficient audit, please reach out to info@corrigankrause.com.
