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Don’t Let the Final 401(k) Audit Deadline Sneak Up on You

by | Aug 2, 2024

Submitting an employee retirement plan audit, specifically a 401(k) audit, before the October 15 deadline is essential for ensuring compliance and avoiding severe penalties. The 401(k) audit is a critical review process that evaluates the financial statements and operations of a company’s retirement plan. This process, also known as an Employee Benefit Plan (EBP) audit, helps confirm that the plan is operating in accordance with the Employee Retirement Income Security Act (ERISA) regulations. It includes a thorough examination of participant data, plan investments, and contributions to ensure accuracy and compliance.

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Key Deadlines and Extensions

The first Form 5500 deadline was July 31. If you, as the plan sponsor, missed that filing deadline, it is imperative to file a 5500 extension with the IRS. This extension grants additional time, allowing you to file by October 15, which is crucial for maintaining regulatory compliance and protecting the interests of plan participants.

Consequences of Missing Deadlines

Missing the initial July 31 deadline and failing to secure the necessary extension can lead to significant penalties. Companies that do not file the required EBP audit and Form 5500 by October 15 face substantial fines from both the Department of Labor (DOL) and the Internal Revenue Service (IRS). The IRS imposes a penalty of approximately $250 per day, up to a maximum of $150,000 per late Form 5500. Additionally, the Department of Labor (DOL) can impose a civil penalty of up to approximately $2,500 per day with no maximum limit.

These penalties can quickly accumulate, creating a heavy financial burden for the company. In addition to monetary fines, non-compliance can trigger further investigations and audits, which can disrupt business operations and damage the company’s reputation. However, there are penalty relief programs available. For example, the IRS offers a Penalty Relief Program for certain non-ERISA plans required to file Form 5500-EZ. The DOL also has a Delinquent Filer Voluntary Compliance Program (DFVC) for plans subject to Title I of ERISA.

The Importance of Compliance

Timely submission of the 401(k) audit demonstrates a company’s commitment to its fiduciary responsibilities and adherence to regulatory standards. It is a vital aspect of financial transparency and governance, reflecting the company’s dedication to protecting the interests of its employees and ensuring the long-term viability of its retirement plan.

Steps to Ensure Compliance

  1. Understand the Requirements: Familiarize yourself with ERISA regulations and the specific requirements for 401(k) audits, including the DOL’s and IRS’s stipulations on accurate financial reporting, plan operations, and compliance checks.
  2. Prepare Early: Start gathering necessary documents and data well before the deadline. This includes financial records, participant data, and information on plan investments.
  3. Consult Professionals: Engage with auditors and compliance experts to ensure all aspects of the audit are covered. Professional guidance can help navigate complex regulations and avoid potential pitfalls.

Urgent Call to Action

By following these steps and partnering with a CPA firm that specializes in 401(k) audits, you can avoid penalties, maintain compliance, and uphold your fiduciary responsibilities. This not only protects your company’s financial interests but also ensures the security and reliability of the retirement benefits provided to employees.

At PriceKubecka, it’s our mission to ensure clients have a better 401(k) audit experience. Our EBP audits inspire the highest level of client confidence. Our CPAs collectively have decades of experience conducting timely, error-free ERISA audits, providing clients with a panic-free audit experience. In addition, the volume of high caliber audits we perform annually places PriceKubecka among the elite 1% of CPA firms across the nation. We know what we’re doing!

Don’t let the October 15 deadline sneak up on you! Act now for a quick yet quality audit that won’t break the bank.

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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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