The coronavirus pandemic may have changed the course of history, but it hasn’t stopped the federal government from enforcing certain requirements designed to protect employee interests. We understand that HR departments already have a ton of their plate managing layoffs, furloughs, re-hires, and everything in between, but you don’t want this public health crisis to cost you more than it already has.
Here are some things to consider when it comes to your 401(k) audit.
As of today, the 5500 deadlines haven’t moved.
Each year, companies with 100 or more employees must file Form 5500 with an attached audit report. So far, the CARES Act has not extended the deadline for filing Form 5500. Therefore, your 401(k) audit must be completed by July 31st for plans that ended on December 31, 2019. (For plans on a different timetable, check the Form 5500 Corner on the IRS website.)
You can file for an extension that will carry you through October 15th, but waiting to the last minute could cause more complications, given the current economic environment. It’s best to act now to ensure you can meet IRS and Department of Labor (DOL) requirements.
Penalties can cost you thousands of dollars.
You are required by law as the plan sponsor to prove to the federal government that you are managing and distributing plan funds according to the rules and regulations outlined in your selected plan. Failure to do so may result in financial penalties from both the IRS and the DOL that amount to thousands of dollars per day.
- IRS Late Filing Fee: $25 per day, up to a maximum of $15,000.
- DOL Late Filing Fee: Up to $1,100 per day, with no maximum.
This legal mandate was put into place to protect employee retirement accounts, and the CARES Act doesn’t relieve employers from the burden of complying with ERISA regulations. Non-compliance, no matter your current situation, is a costly option most businesses want to avoid.
Audits can be conducted remotely.
401(k) audits can be daunting. The first step is to find a CPA firm that can ease the process and relieve the stress that comes with any audit. You may feel hampered by the stay-at-home-orders or inundated with a variety of workplace challenges, but a virtual audit can set things in motion while your focus on other priorities.
For example, PriceKubecka built Autire, auditing technology that enables a fully remote solution. We can collect all data electronically from your plan sponsor, and you only need to be available for a kick-off call and a one-hour web meeting to review your plan. We may have a question on occasion, but for the most part, 80-100% of the audit can be completed without us needing any files locked away in your offices.
Last year, we completed 100% of our 401(k) audits remotely, so we didn’t need to reconfigure our processes to accommodate clients given the recent pandemic circumstances. We already had a successful business model in place.
Remote 401(k) audits save money.
Traditional audits typically require that a team of CPAs spend up to a week in your offices engaging with employees to obtain all the relevant data necessary to file Form 5500. Our virtual audits enable four key cost benefits:
- No travel or incidental expenses: CPAs are pricey. Remote 401(k) audits eliminate travel costs and, in some cases, cut the time to complete an audit by 50%.
- Less employee oversight required: HR teams don’t have 40+ hours to spare right now. Remote audits require significantly less employee time (in our case, just 2-3 hours) to facilitate the audit and answer questions.
- Maximize employee resources: Alternatively, you can make good use of your employees’ time while working from home if they have additional bandwidth. In just a few hours over the course of the next three weeks, your audit could be complete.
- More affordable: 401(k) audits typically cost around $15,000 – a hefty price for businesses to pay, especially in these times. But with technology, costs can come down significantly. Our technology does the heavy lifting around time-consuming, mundane auditing tasks, and allows us to spend our time more efficiently on completing a high-quality audit. That productivity enables us to charge 50% less than other CPA firms.
Focus on getting your employees back to work, not an audit.
The entire nation is waiting to return to work, and when we do, your focus will not be on wearisome paperwork but rather on rebuilding your business to create value in this new normal. Of all the things you will have on your plate, the 401(k) audit shouldn’t distract you from getting your business back on track. Here’s how to get started today:
- Choose an auditor: Select a reputable CPA firm that has a deep bench of expertise in 401(k) audits. Pick a company that is a member of ACIPA’s Employee Benefit Audit Quality Center. This special membership organization requires firms to take mandatory continuing education in employee benefit plans. Expertise reduces costly mistakes.
- Identify the fiduciary: Determine who has authority over your plan’s management, plan assets, and plan administration. The fiduciary could be your TPA or an internal company officer. They will be the main point of contact for ensuring that auditors have access to the necessary information.
- Gather the documentation: Admittedly, there are quite a few documents required for the audit, but if you use a firm that specializes in these audits, they will know how to make data gathering easier on you. Furthermore, many of the data reports can be obtained directly from your recordkeeper. View a list of required documents.
