As a seasoned 401(k) plan auditor, I am aware that very rarely do 401(k) plan clients see an audit of plan financial statements as a value added service. Instead, they see it as a mere regulatory requirement. Make no mistake; there would be far fewer audits of 401(k) plans if IRS Form 5500 did not require large plans to attach an audit report. This does not, however, mean that all 401(k) plan audits are created equally, and that a plan audit can’t also offer a value added service in addition to satisfying regulatory requirements.
Many plan failures involve the plan provisions saying one thing, and the daily plan operations doing something else. These operational failures are often easily corrected without contacting the IRS or Department of Labor (DOL) – if they are identified timely. During the performance of a plan audit, it is not uncommon for a diligent auditor to catch several operational failures of which plan management was unaware.
Some of the more usual findings involve administration of elective deferrals and plan loans, vesting percentage errors, and distribution and forfeiture problems. Another familiar difficulty is when to allow rehired employees to enter the plan. However, some of the most overlooked commonplace errors revolve around employee military leave, which is becoming more and more common. I think we all agree that no one wants to inadvertently cause detriment to someone who serves our country.
For instance, military employees sometimes meet plan eligibility requirements while on military leave. Upon their return to employment, they are sometimes not permitted to do the following:
- enter the plan at the proper time,
- receive employer contributions earned with the help of military leave hours, or
- have the opportunity to make up missed elective deferrals.
Also, participants with outstanding plan loans who are on military leave are entitled to an interest rate at or below a special limit while they are gone.
These are some examples of value added services that an audit of plan financial statements can provide. When I am able to help any of our service men and women, even in such a small way, plan management is very appreciative, and it is a precious and rewarding moment for me as well. (My father was a WWII Army veteran.) Don’t settle on a plan auditor without understanding their experience level and dedication to performing a quality plan audit. This is a specialized field, and you will be better served to hire specialized auditors.
Levin Swedler Crum is a member of the Employee Benefit Plan Audit Quality Center (EBPAQC) of the American Institute of Certified Public Accounts (AICPA). The EBPAQC helps member CPA firms meet the challenges of performing quality ERISA audits. Accordingly, we can provide not only an efficient and effective audit of your 401(k) plan, but also advise you on ways to improve your plan’s internal control, as well as on important compliance matters such as ERISA, IRS, and DOL laws and regulations.