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Auditing employee benefit plans is an essential requirement for ensuring compliance with the Employee Retirement Income Security Act (ERISA), the federal law governing employee retirement and income security. Generally, plans with 100 or more participants with an account balance are subject to the audit requirement. Under the law, plan administrators, the IRS, and the DOL are responsible for determining compliance with legislative and regulatory requirements under ERISA. The Form 5500 annual report, the financial statements prepared by the plan administrator, and the independent auditor’s report all contribute to the monitoring activities of these parties and agencies. Before undergoing a 401(k) plan audit, here are some things that can help prepare for the audit.

Gathering and Organizing Documents

Collect all pertinent records and documents associated with the benefit plan, including the executed plan document, plan amendments, current IRS description, and summary plan description. During the audit, the auditor will review various aspects of the benefit plan, including contributions, distributions, investments, participant records, and plan transactions. By organizing the corresponding documents, you provide the necessary supporting evidence to validate the accuracy and completeness of reported information. To ensure alignment with ERISA requirements, verify the accuracy and currency of all plan documents, including the summary plan description and amendments.

Fiduciary Responsibility

Fiduciary responsibility refers to the legal obligation and duty of individuals or entities responsible for managing and administering employee benefit plans. These fiduciaries are required to act in the best interests of the plan participants and beneficiaries, placing their interests above their own. Some actions include forming a 401(k) administrative committee, having regular meetings, and taking a minutes report of each session. It is also advised to review administrative fees being charged to the plan for reasonableness. 

Internal Controls

Internal controls refer to the policies, procedures, and practices a company or organization implements to safeguard its assets, ensure accurate financial reporting, and promote compliance with laws and regulations. In the context of employee benefit plan audits, internal controls are crucial in providing reasonable assurance that the plan’s operations are effective, reliable, and compliant with applicable requirements. This includes reviewing the third-party administrator’s (TPA) user controls report and participant data provided to the plan’s TPA regularly. It also includes reviewing the plan’s trust statements on a regular basis, at least quarterly. 

Preparing for an employee benefit plan audit is a crucial step in ensuring compliance, mitigating risks, and maintaining the integrity of the benefit plan. By gathering and organizing relevant documents, companies can verify compliance with legal requirements and provide supporting evidence during the audit. Understanding fiduciary responsibilities helps foster a commitment to acting in the best interests of plan participants and beneficiaries. Strong internal controls, such as segregation of duties, authorization processes, and compliance monitoring, further strengthen the control environment and promote accurate financial reporting. By following these guidelines and proactively addressing any identified issues, companies can confidently navigate the audit process, foster trust, and ensure the effective management of employee benefit plans.

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