Imagine preparing for an event without knowing what to expect. That's often how many companies feel about a 401(k) plan audit. These reviews are not just a mandate; they're a crucial part of ensuring that a company’s 401(k) plan is operating as intended and as efficiently as possible.

A well-prepared audit has benefits for both sides. For employees, it brings peace of mind, knowing their retirement funds are managed properly. For employers, it assures compliance with regulations so that you can continue to reap the tax advantages and other benefits of operating a plan while helping identify areas for improvement.

Having a clear understanding of the process, properly preparing, and working with a recordkeeping provider like Vestwell can make all the difference. Our team is experienced in guiding plans through audits smoothly and efficiently. We are confident in the accuracy of our recordkeeping and are committed to making your plan administration as simple and stress-free as possible.

Understanding a 401(k) Plan Audit

A 401(k) plan audit is a detailed examination of a company's controls with respect to its retirement savings plan. An audit can help make sure everything is running smoothly and up to par with legal requirements as well as check that plan assets are being used to support the plan and not for any illicit purposes. Let's break down why audits are necessary and what they typically involve.

What Is a 401(k) Plan Audit?

An audit is essentially an independent examination of the inflow and outflow of funds from a company retirement plan to confirm that it is using plan assets properly.

Why Is a 401(k) Plan Audit Required?

The Department of Labor (DOL) requires annual audits for companies with 100 or more participants who have a balance at the start of the plan year. This requirement helps protect participants' funds by ensuring plans adhere to the rules of operating a retirement plan.

Key Components Auditors Examine

Plan auditors will review a sampling of saver records and transactions to verify that plan assets are being invested consistently with saver instructions, the fees charged to a saver are consistent with the plan’s services agreements, and any withdrawals and corrections were handled properly. The goal of the audit is to confirm that the internal controls being used by the employer and its service providers are enabling the plan to operate consistently with DOL and Internal Revenue Service (IRS) regulations.

Understanding these components helps businesses grasp what auditors look for and makes sure that both parties are well-prepared for the process. Knowing these areas can make the audit not just a procedural necessity but a beneficial exercise that enhances trust and performance.

Preparing for a 401(k) Plan Audit

Getting ready for the audit is important, and being organized is key. Here are some steps to help prepare efficiently.

1. Gather Necessary Documentation: Start early by collecting all relevant documents, such as plan documents, investment information, and saver data. Having these on hand speeds up the audit and minimizes last-minute stress. Employers that use Vestwell’s platform can find all of these materials in their Vestwell account portal.
2. Set Up Internal Controls: Establish strong internal controls to monitor plan activities. Be sure that financial records are accurate and regularly reconciled to avoid discrepancies. Your auditor can assist you with this.
3. Organize and Maintain Records: Keeping records organized is essential. Create a system that allows quick access to documents. Label files clearly, use digital backups, and update records routinely. Vestwell’s platform was designed to assist employers so they can be audit-ready quickly and efficiently.

Being proactive in preparation not only eases the audit process but also strengthens the overall management of the 401(k) savings plan. Clear records, proper controls, and timely documentation pave the way for a smoother audit, saving time and reducing any potential audit-related concerns.

The Audit Process

The audit process itself can bring a clearer view of how well the plan is managed. Here's a breakdown of what typically happens.

Initial Meeting

Auditors and company representatives meet to outline the plan, clarify expectations, and set timelines.

Document Review

Auditors will review the gathered documents, focusing on verifying transactions and checking the accuracy of saver records. This step can help align with policies.

Vestwell provides the auditor with a comprehensive audit package—including trust reports, plan documents, plan activity reports, and compliance testing—to help streamline the review process. We communicate directly with the auditor during this time, reducing back-and-forth and taking on the administrative tasks for the employer.

Fieldwork

Auditors may perform on-site or virtual testing of internal controls and procedures.

Vestwell directly assists by addressing questions and retrieving samples, further reducing the employer’s time investment.

Findings and Feedback

Any issues or gaps identified during the audit are discussed, and corrective measures are recommended.

Vestwell collaborates with the auditor and employer to resolve issues and then files the auditor’s opinion with Form 5500, so employers can rest easy, knowing their plan is in good hands.

How Vestwell Can Help Facilitate

Vestwell’s team of compliance professionals can provide essential assistance to your auditor. By using the Veswell platform, you and your auditor already have convenient access to an extensive audit package of key plan documents and reports. Vestwell’s compliance teams include more than a dozen professionals, many of whom are Enrolled Retirement Plan Agent (ERPA) certified with the IRS and have assisted employers with, collectively, thousands of audits during their careers.

Our team provides up to four hours of assistance to your auditors. The best part? Audit assistance is a standard part of our service. While many providers charge additional fees for this support, we include it at no extra cost. Additionally, we assign a direct audit contact from our team to work one-on-one with your auditor—streamlining communication and making it easier to resolve questions promptly.

Maintaining Compliance and Ongoing Preparation

Large plans are required to undergo independent audits each year so staying compliant is an ongoing effort, and keeping your plan in good health goes beyond the audit. Taking some time throughout the year to reassess can help prepare your company for the next audit.

• Regular Check-Ins: Schedule regular reviews of plan operations with your internal team to catch any issues early. This means routinely verifying that contributions are processed correctly and that distributions comply with the rules. Your Vestwell account portal has eligibility and other reports that you can review at your convenience to help you spot-check and confirm saver contributions are being processed promptly.
• Keep Up-to-Date With Changes: Regulations can change. Staying informed about new rules and how they affect your plan can help you stay a step ahead. Vestwell makes all required changes to your plan documents as a standard part of our services, and we offer webinars and updates to help you understand the latest legislative developments.
• Train Your Team: Make sure your internal staff involved with the plan understand their roles and responsibilities. Regular training sessions can help maintain skills and knowledge, keeping everyone aligned with current practices. We offer a plan governance toolkit at no additional charge on our platform that you may also find helpful.

By embedding these habits into your routine, you'll find audits becoming smoother and faster, paving the way for effortless compliance.

Ensuring a Smooth 401(k) Plan Audit Experience

The goal is to make audits a routine check-up without stress. A well-maintained plan fosters trust and transparency, benefiting both employees and employers in the long run. Leveraging support from knowledgeable partners can help with the audit process, providing expertise to handle any surprises.

Whether you're just starting with 401(k) compliance or improving a current plan, understanding the details of audits can make a real impact. For more guidance on how to set up and manage a 401(k) savings plan that works for your business and your team, explore this helpful resource.