As of mid-2014, about 52 million Americans were participants in 401(k) plans, and collectively, these plans accounted for an estimated $4.4 trillion of the $24.0 trillion in retirement assets in the United States. Twenty years ago this wasn’t the case, but 401(k) plans have become the plan of choice for many plan sponsors.
Participants in 401(k) plans defer portions of their paychecks to their plans pre-tax and are able to accumulate assets for retirement. Many times, employers may also contribute a matching or “profit sharing” (or nonelective) contribution to supplement employees’ investments.
A few of the key areas of emphasis in the audit of a 401(k) plan include:
The timeliness of remittances to the Plan. Since money is withheld from participants’ paychecks, plan sponsors of large retirement plans (>100 participants) are legally required to deposit those funds into the plan as soon as administratively feasible.
The definition of compensation. There are many ways to define compensation, but it is important that a plan follows the definition set forth in its governing documents.
Allocation of investment earnings to participants. 401(k) plans are one type of “defined contribution” plan meaning that participants’ benefits are generally defined by their contributions and the net gains or losses of their investment selections.
At Pension Assurance LLP, we design our audits to specifically address these and other key audit risk areas specific to 401(k) plans. When issues are noted, we take a proactive approach, focusing on how to resolve any past errors and make changes to the plan or its operations to prevent the issue in the future. While we must maintain objectivity and independence, we don’t believe that requires us to be adversarial. We take great pride in helping clients positively address issues when they arise.