02/07/15 By Jennifer Brown

401k-auditThis morning started off like any other morning. Until you opened the letter from the Department of Labor (or IRS) and found out that your company’s 401(k) plan had been selected for an audit. First step, take a deep breath – you will get through this! An audit can elicit feelings of anxiety (Why me? What do I need to do? What if they find something wrong?). Being prepared is the best way to decrease anxiety and ensure your company’s 401(k) plan survives the audit. Before that letter arrives on your desk, make sure you are ready. Here are a few strategies to help you prepare:

Get Your Stuff Together
Compile all the necessary documents outlining the specifics of your company’s 401(k) plan including plan details, recent changes, federal required filings such as Form 5500, and contact information for your plan’s sponsor, administrator, and custodian. An auditor will ask for this information up front, so best to have it ready to go versus scrambling to find it.

Check Your Census
Reach out to your 401(k) plan’s administrator and request a copy of the plan’s census. The census is a listing of all employees during the year under the audit (both new hires and those terminated) and will include details such as name, SSN, date of birth, date of hire, date of termination, current status, wages for the year, deferrals for the year, and any other payroll deductions. Once obtained, verify the salary on the census matches your payroll records. If it does, great! If it does not, be proactive and research the discrepancy. Better to know (and fix) now.

Know Your Payroll
Ensure you can easily retrieve a schedule of all payrolls including pay period, pay date, payroll amount, and 401(k) deferrals.

Keep Your Fidelity Bond in Line
Make sure your fidelity bond is adequate. The fidelity bond is usually obtained from your general liability insurance provider and covers a percentage of the plan’s assets. If your 401(k) plan’s assets increase, your fidelity bond coverage should increase accordingly.

Keep Loans in Good Standing
Review your 401(k) plan’s loan policy. Make sure you are in good standing and compliant with your policy’s specific guidelines.

Do a Double Check
Review your 401(k) plan’s definition of ‘eligible compensation’. Verify this is being calculated/deducted accurately by randomly selecting a few employees to see if their eligible compensation was included in the calculation for deferrals.

Conducting your own informal audit annually will ensure you are ready to take on the real thing should it come knocking at your door. Be sure to check out the Department of Labor’s website for more information on retirement plan compliance as well as this checklist for ideas on how to prepare for a 401(k) audit. Best of luck!


photo credit Stuart Miles via FreeDigitalPhotos.net