Retirement Meditation #42: What are the most common retirement plan audit findings?

Insights | Retirement Meditation #42: What are the most common retirement plan audit findings?
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A manufacturer offering a generous safe harbor 401(k) match noticed that it was losing existing talent and employee candidates to the competition. A review of its total compensation package revealed some opportunities to upgrade several benefit programs, especially their retirement plan. While permissible regulatorily, the age 21 and 1-year-of-service plan eligibility requirements with quarterly entry were not competitive when compared to peers. The manufacturer amended their plan to reduce eligibility to age 20 and 3 months of service with monthly entry. No one communicated the Plan change to their payroll provider. The Plan’s auditor uncovered the issue 18-months after the change should have taken effect, during the Plan’s regular annual audit.

ERISA requires retirement plans such as 401(k) and 403(b) plans with 100 or more participants to have an annual audit performed by an independent public accounting firm. Often these audits uncover issues that the plan sponsor may have been unaware of or simply overlooked implementing. The most important findings are the ones that can jeopardize the tax-qualification of the retirement plan. To assist plan sponsors, the IRS created the Employee Plans Compliance Resolution System or “EPCRS” (which is commonly pronounced “Epp-Kurs”). “EPCRS” identifies and details three IRS programs to correct mistakes: Self-Correction, Voluntary Correction, and Audit Closing Agreement.

Some of the most common retirement plan audit findings, in no particular order, include - 
•    The failure to correctly apply the plan document’s definition of compensation.
•    The failure to withhold the correct deferral amount based upon the employee’s election.
•    The failure to remit contributions to the plan on a timely basis.
•    The failure to calculate employer match pursuant to the terms of the plan document.
•    The failure to auto-enroll participants timely.
•    The failure to auto-escalate participants who have not opted out.
•    The failure to apply forfeitures in accordance with plan document provisions.
•    The failure to update payroll systems to reflect plan provision changes (highlighted in the article’s opening paragraph).

One best practice for plan sponsors to consider is to invite the plan's service providers – third party administrator, recordkeeping representative, ERISA counsel, and advisor (especially if your advisor is plan document/plan operation knowledgeable) – into your audit findings. Collectively, this team can help plan sponsors evaluate the findings, make corrections, and avoid future occurrences. 

Do you completely address your annual audit findings?

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