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4 Things To Look For When Selecting A 401k Auditor

by | Feb 26, 2024

If your business has a 401(k) plan with 100 or more account balances at the beginning of a plan year, you are required to perform a 401(k) audit. The audit report must be finished and filed with the IRS by July 31. In other words, the clock is ticking!

Looking for an EBP Auditor? Here’s what’s important to consider.

The first step in the 401(k) audit process is to find a qualified, independent auditor. But not any CPA will do! Choosing the wrong auditor can have severe consequences for your company, your plan, and your plan’s participants. To help you in your search, PriceKubecka’s 401(k) audit team has compiled a list of criteria you should consider when selecting a 401(k) auditor.

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Experience & Expertise

Look for auditors with specific expertise in auditing employee benefit plans, particularly 401(k) plans. They should be familiar with the complexities and regulations governing these plans, such as the Employee Retirement Income Security Act (ERISA) and Department of Labor (DOL) requirements. Experienced auditors will have performed hundreds of 401(k) audits and therefore, have better knowledge of plan design and service provider nuances that are integral to the 401(k) audit.

In the Department of Labor’s most recent Audit Quality Study, firms with a higher volume of work on EBP audits produce better results. PriceKubecka performs more than 400 high caliber audits every year, placing us in the top 1% of CPA firms in the United States.

In addition to asking about quantity, also find out who’s working on all those audits. Many CPA firms use interns or inexperienced professionals to work on 401(k) audits, which makes those audits prone to errors and too many unnecessary questions. PriceKubecka employs licensed CPAs with substantial experience. Additionally, our work undergoes peer review through the AICPA, ensuring quality and accuracy.

Cost & Value

When evaluating potential auditors, consider the auditor’s fees in relation to the value they provide. While cost is a key factor, you should prioritize value and the quality of the audit services. A thorough and accurate audit can help prevent costly penalties and compliance issues in the long run.

But a thorough and accurate audit doesn’t also have to be expensive! Opting for a transparent, flat-fee pricing model ensures clarity regarding costs before the audit commences. For instance, by leveraging advanced technology, PriceKubecka can provide a high-quality flat-fee audit for $10,000 – a fraction of what an hourly-based audit would cost! PriceKubecka makes it easy for companies to know exactly how much their audit will cost.

Streamlined Process

As the saying goes, time is money. Look for auditors who minimize the time and effort required for the audit process.

Technology can have an enormous impact on the process of an audit. While most auditors use manual programs and require the client to perform all information gathering, PriceKubecka uses proprietary software that allows for a 100% remote audit experience.

Our powerful technology connects directly to your record keeper to gather data so there is no need for you to spend hours fielding questions and emailing documents. Moreover, technology paired with expert human resources ensures a high level of accuracy that you can trust.

Communication & Compatibility

Finally, choose an auditor who aligns with your company’s values, culture, and goals. A good fit in terms of communication style, responsiveness, approach to auditing, and understanding of your business can enhance the audit process and facilitate a productive working relationship.

Conclusions

Don’t take a chance on an inexperienced 401(k) auditor. Even if you already have a CPA for other financial matters, find an experienced 401(k) auditor so disruptions to your current workflow are minimized.

At PriceKubecka, it’s our mission to ensure clients have a better audit experience. CONTACT US  today to get your high-quality, low-cost audit started and finished well before the July 31 deadline.

Does a Fiscal-Year 401(k) Plan Still Need an Audit?

Potentially, yes.

Operating on a fiscal year does not eliminate or change the basic requirement for an independent employee benefit plan audit. Whether a defined contribution plan requires an audit generally depends on its Form 5500 filing status and the applicable participant-count rules—not whether its plan year ends December 31.

For defined contribution plans, the relevant participant count now focuses on participants and beneficiaries who have account balances at the beginning of the plan year, rather than everyone merely eligible to participate.

So an off-cycle plan sponsor should answer two separate questions:

Do we have an audit requirement?

And, if so:

When must that audit be completed so our Form 5500 can be filed on time?

Those are related questions, but they aren’t the same question.

When Should a Fiscal-Year 401(k) Audit Start?

The Form 5500 deadline should be the end of your audit timeline—not the beginning of it. The safest approach is to work backward from your actual filing deadline and establish the audit schedule well in advance.

If an independent audit is required, the auditor’s report generally accompanies the Form 5500 filing. That means the audit needs to be substantially complete before your filing deadline arrives.

There isn’t one audit-start date that works for every plan. The amount of time needed depends on factors such as plan size, the availability of records, the complexity of the plan and whether testing identifies issues requiring follow-up.

A practical timeline should allow time for:

Data collection: Your team may need to gather census information, payroll data, contribution records, recordkeeper reports, participant files and plan documents.

Audit testing: Your auditor will perform required procedures and may select participants or transactions for additional documentation.

Follow-up questions: Missing information and discrepancies often require responses from HR, payroll, the recordkeeper, TPA or other providers.

Resolving exceptions: Eligibility errors, contribution discrepancies, participant loans, distributions, compensation issues and other findings can require additional investigation.

Final review and issuance: The audit team still needs time to complete its review and issue the auditor’s report before the Form 5500 is finalized.

Example: A 401(k) Plan With a March 31 Year-End

Suppose your plan year ends March 31.

Your normal Form 5500 deadline is generally October 31.

With a timely Form 5558 extension, the deadline can generally be extended to January 15.

That does not mean January should become your target date for beginning the audit.

Instead, the plan sponsor and auditor should establish a timeline that leaves enough time before the applicable deadline to obtain records, complete testing and address any unexpected issues.

In other words:

March 31 plan year-end → October 31 normal deadline → January 15 extended deadline

Your audit calendar should be built backward from whichever filing deadline applies.

Example: A 401(k) Plan With a June 30 Year-End

A June 30 plan operates on a very different schedule.

Its Form 5500 would generally be due January 31 of the following year.

With a timely Form 5558 extension, the deadline would generally move to April 15.

For that employer, traditional summer 401(k) “audit season” may be largely irrelevant. Its audit preparation and testing may instead take place during the fall and winter.

That is why a plan with a non-calendar-year end should work with an auditor that maintains employee benefit plan audit capabilities throughout the year.

What Can Delay an Off-Cycle 401(k) Audit?

Having a different deadline doesn’t protect a plan from the same issues that slow down calendar-year audits.

Some common audit roadblocks include:

  • Missing or inaccurate census information
  • Eligibility and plan entry-date errors
  • Incorrect employer contribution or match calculations
  • Incorrect application of the plan’s compensation definition
  • Late participant contributions
  • Participant loan problems
  • Vesting or forfeiture discrepancies
  • Distribution documentation issues
  • Differences between payroll and recordkeeper data
  • Delays obtaining information from outside service providers

One of the advantages of starting early is having time to resolve those issues before they become filing-deadline problems.

What If Your Fiscal-Year Form 5500 Deadline Falls on a Weekend or Holiday?

There is an important exception to the dates in the chart.

If a Form 5500 filing deadline falls on a Saturday, Sunday or federal holiday, the filing can generally be made on the next day that is not a Saturday, Sunday or federal holiday. U.S. Department of Labor

That means sponsors should verify the precise deadline for the applicable filing year rather than relying solely on a recurring calendar.

The month-by-month chart is best used as a planning guide.

What About Short Plan Years?

A short plan year can occur when, for example, a plan changes its plan-year end or terminates and completes the distribution of plan assets.

The general Form 5500 timing rule still applies: the filing is generally due by the last day of the seventh calendar month after the short plan year ends, subject to an authorized extension. U.S. Department of Labor

Short plan years can introduce additional reporting and audit considerations, so sponsors should coordinate the filing timeline with their TPA, auditor and other advisors rather than assuming the normal annual schedule applies.

Don’t Build Your Audit Around October 15 If October 15 Isn’t Your Deadline

October 15 gets enormous attention in the 401(k) industry because it is the extended Form 5500 deadline for many calendar-year plans.

But it’s only one deadline.

For a non-calendar-year plan, your filing date could fall in January, April, June, November—or virtually any other month.

Your audit calendar should therefore begin with three questions:

When does our 401(k) plan year end?

When is our Form 5500 due?

When does the audit need to begin to comfortably meet that deadline?

Once those dates are established, your organization can build a recurring compliance calendar around its own plan rather than someone else’s audit season.

Looking for a 401(k) Auditor for a Fiscal-Year Plan?

PriceKubecka performs employee benefit plan audits throughout the year for both calendar-year and non-calendar-year 401(k) plans.

Our employee benefit plan specialists perform more than 400 EBP audits annually, including 401(k), 403(b) and ESOP audits. Because employee benefit plan auditing is a significant part of our audit practice, we can work with plan sponsors whose audit and Form 5500 deadlines fall throughout the year.

Whether your plan ends March 31, June 30, September 30 or another date, your audit should be built around your plan year and your deadline.

[Talk to a 401(k) Auditor]

Example: A 401(k) Plan With a March 31 Year-End

Suppose your plan year ends March 31. Your normal Form 5500 deadline is generally October 31.

With a timely Form 5558 extension, the deadline can generally be extended to January 15.

That does not mean January should become your target date for beginning the audit.

Instead, the plan sponsor and auditor should establish a timeline that leaves enough time before the applicable deadline to obtain records, complete testing and address any unexpected issues.

In other words:

March 31 plan year-end → October 31 normal deadline → January 15 extended deadline

Example: A 401(k) Plan With a June 30 Year-End

A June 30 plan operates on a very different schedule.

This plan’s Form 5500 would generally be due January 31 of the following year. With a timely Form 5558 extension, the deadline would generally move to April 15.

For that employer, traditional summer 401(k) “audit season” may be largely irrelevant. Its audit prep and testing may instead take place during the fall and winter.

That’s why a plan with a non-calendar-year end should work with an auditor that maintains EBP audit capabilities throughout the year.

In other words:

June 30 plan year-end → January 31 normal deadline → April 15 extended deadline

What Can Delay an Off-Cycle 401(k) Audit?

Having a different deadline doesn’t protect a plan from the same issues that slow down calendar-year audits. Some common audit roadblocks include:

  • Missing or inaccurate census information
  • Eligibility and plan entry-date errors
  • Incorrect employer contribution or match calculations
  • Incorrect application of the plan’s compensation definition
  • Late participant contributions
  • Participant loan problems
  • Vesting or forfeiture discrepancies
  • Distribution documentation issues
  • Differences between payroll and recordkeeper data
  • Delays obtaining information from outside service providers

One of the advantages of starting early is having time to resolve those issues before they become filing-deadline problems.

What If Your Fiscal-Year Form 5500 Deadline Falls on a Weekend or Holiday?

There is an important exception to the dates in the chart. If a Form 5500 filing deadline falls on a Saturday, Sunday or federal holiday, the filing can generally be made on the next day that is not a Saturday, Sunday, or federal holiday. 

That means sponsors should verify the precise deadline for the applicable filing year rather than relying solely on a recurring calendar. The month-by-month chart is best used as a planning guide.

What About Short Plan Years?

A short plan year can occur when, for example, a plan changes its plan-year end or terminates and completes the distribution of plan assets.

In this case, the general Form 5500 timing rule still applies: the filing is generally due by the last day of the seventh calendar month after the short plan year ends, subject to an authorized extension. 

Short plan years can introduce additional reporting and audit considerations, so sponsors should coordinate the filing timeline with their TPA, auditor, and other advisors rather than assuming the normal annual schedule applies.

Don’t Build Your Audit Around October 15 if it isn’t Your Deadline

October 15 gets enormous attention in the 401(k) industry because it is the extended Form 5500 deadline for many calendar-year plans. But it’s only one deadline.

For a non-calendar-year plan, your filing date could fall in January, April, June, November—or virtually any other month. Your audit calendar should therefore begin with three questions:

  1. When does our 401(k) plan year end?
  2. When is our Form 5500 due?
  3. When does the audit need to begin to comfortably meet that deadline?

Once those dates are established, your organization can build a recurring compliance calendar around its own plan rather than someone else’s audit season.

Looking for a 401(k) Auditor for a Fiscal-Year Plan?

PriceKubecka performs employee benefit plan audits throughout the year for both calendar-year and non-calendar-year 401(k) plans.

Our EBP specialists perform more than 400 audits annually, including 401(k), 403(b) and ESOP audits. Because employee benefit plan auditing is a significant part of our audit practice, we can work with plan sponsors whose audit and Form 5500 deadlines fall throughout the year.

Whether your plan ends March 31, June 30, September 30, or another date, your audit should be built around your plan year and your deadline.

[Talk to a 401(k) Auditor]

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