business Facing a 401(k) Audit Deficiency? Here's What to Expect and How to Respond October 07, 2024 Did your 401(k) audit reveal a deficiency? This can be daunting. Here’s what you should do to ensure you’re in compliance. Plan sponsors…did your auditor identify incorrect or incomplete items in an audit of your 401(k) plan? Here’s how to address a deficiency. First off, when is a 401(k) audit needed? Check out our blog, When does a 401k Plan Need an Audit? for the details on when a 401(k) plan requires an audit. What are some common deficiencies in 401(k) audits? So, once the audit is done, what are some deficiencies auditors can find? Some common examples of deficiencies include: Plan operation errors (the operation of the plan didn’t follow the plan document)Failing to deposit employee contributions or loan repayments into the plan consistently and as soon as administratively possible Inappropriate use of the definition of compensation that can result in missed deferrals and other errorsNot addressing and correcting compliance testing errorsNot keeping up to date with required amendmentsImproper employee matching contributionsIncorrect management of hardship distributionsIncomplete form 5500 What steps should you follow if an audit reveals a deficiency? You should discuss the finding with your auditor and carefully review the management communication letter to understand the reportable finding. Once you properly understand the deficiency, it’s wise to consult a retirement plan advisor, such as the plan’s third-party administrator or an ERISA attorney. Your auditor can suggest which party is best to consult depending on the complexity of the deficiency. They will assist the plan sponsor to: Update plan documents if this is the suggested correction methodDevelop a clear plan to resolve the issue. This might include recalculating contributions, reprocessing distributions, adjusting participant counts and correcting operational failures.Alert participants who may have been impacted by the error and share the corrective action planUse self-correction programs- Check out our blog, Plan Sponsors, Did You Find an Error in Your Employee Benefit Plan? Here’s How to Correct It Strengthen internal controls and train staff to prevent future deficienciesKeep detailed records of the deficiencies and corrective actions. Worried about potential 401(k) deficiencies? We can help you avoid penalties and keep your plan compliant. Reach out to our team for assistance.
