A 401(k) Audit Checklist is crucial as it ensures compliance with regulatory requirements and helps maintain the integrity of the retirement plan. The checklist serves as a comprehensive guide, outlining the necessary steps and documentation needed for a thorough audit. By following this checklist, plan sponsors can ensure that all relevant financial records, participant data, and plan operations are accurately reviewed and assessed.
Ensure the plan document is up to date, accurately reflects the plan's provisions, and complies with relevant laws and regulations. This review helps identify any inconsistencies or gaps that may lead to compliance issues.
Verify that all eligible employees are enrolled in the plan and that contributions are being made accurately and in a timely manner. This helps ensure fair treatment of employees and compliance with contribution limits.
Confirm that the vesting schedule is correctly applied to participants' accounts. This is crucial to ensure that employees receive their entitled benefits based on their years of service.
Assess the plan's investment options and review the investment policy statement to ensure they align with the participants' best interests. Monitoring investment performance helps protect participants' retirement savings and demonstrates fiduciary responsibility.
Examine transactions involving parties with a prohibited relationship to the plan, such as plan sponsors, trustees, or certain family members. Identifying and addressing prohibited transactions helps maintain plan compliance and protects participants from potential abuses.
Review loans and distributions made to participants, ensuring they comply with the plan's provisions and applicable regulations. This helps prevent unauthorized or non-compliant distributions, protecting the plan's integrity.
Perform various compliance tests, including the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests, to ensure the plan does not favor highly compensated employees. This testing maintains plan eligibility and avoids penalties.
Evaluate the actions of plan fiduciaries to ensure they have acted prudently, loyally, and in the best interests of plan participants. This assessment helps mitigate potential legal and financial risks for the plan and its fiduciaries.
Review the plan's fees and expenses, including investment management fees and administrative costs. Assessing the reasonableness of these expenses helps ensure participants' assets are not unreasonably depleted and promotes transparency.
Assess the plan's internal controls to identify any weaknesses or gaps that could lead to errors or fraud. Strong internal controls safeguard the plan's assets and provide reliable financial reporting.
A 401K audit checklist typically includes items such as plan document review, participant eligibility and contributions, vesting, investment monitoring, prohibited transactions, participant loans and distributions, compliance testing, fiduciary responsibilities, plan expenses and fees, and internal controls.
Non-compliance discovered during a 401K audit can lead to penalties, corrective actions, and potential legal issues. It may result in plan disqualification, financial liabilities for the plan sponsor, and adverse impacts on plan participants.
The duration of a 401K audit process can vary depending on the complexity and size of the plan. It typically takes several weeks to several months to complete, considering the gathering of necessary documents, performing audit procedures, and preparing the final audit report.
Yes, certain small plans may qualify for an exemption from a full 401K audit under the "80-120 Participant Rule." In such cases, plan sponsors can file a Form 5500-SF, which requires less extensive reporting and audit requirements.
Yes, a 401K audit can potentially uncover instances of fraud, misconduct, or mismanagement within the plan. The auditor examines internal controls and transactions, making it possible to detect irregularities and identify potential areas of concern.
Overall, a 401(k) Audit Checklist plays a vital role in ensuring compliance, detecting and preventing errors or fraud, evaluating internal controls, and promoting transparency and accountability. It provides a structured approach to conducting thorough audits, enabling plan sponsors to safeguard the interests of employees and maintain the integrity of the retirement plan.
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