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There is still time to prepare for your first 401(k) audit

Act now and follow PriceKubecka’s step-by-step guide to meet the IRS filing deadline.

by | Jun 13, 2024

Time is of the essence as the first deadline for completing your 401(k) audit is rapidly approaching (July 31). For companies new to the 401(k) audit process, this task may seem overwhelming, but it’s something you can’t ignore! It’s crucial to act now to ensure compliance and avoid penalties. Here’s PriceKubecka’s to-do list for a smooth and speedy 401(k) audit. 

Determine Right Now if You Need a 401(k) Audit

If your 401(k) Plan has 100 or more account balances at the beginning of the plan year, you must undergo a 401(k) audit through a third party. The number of account balances includes active employees and retired, deceased, or separated employees who have 401(k) assets held under the Plan. There are a few exceptions to this eligibility criteria. Read about these audit exceptions here.  

Get Moving on Finding a Qualified Auditor

Credentials: While you need to select an auditor like yesterday, it’s important to be thoughtful in your selection. Choose an auditor with expertise in auditing employee benefit plans, particularly 401(k) plans. Experienced auditors have the knowledge necessary to handle the nuances of plan design and service provider issues.  

Request Proposals: 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. But your audit doesn’t have to be expensive. Opting for a transparent, flat-fee pricing model ensures clarity regarding costs before the audit commences.   

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Coordinate with Service Providers Now

Work closely with your Third-Party Administrators (TPAs) and recordkeepers to complete annual compliance testing and to provide a draft of your form 5500. Any delay could jeopardize your compliance status. 

Pre-audit Kickoff Meeting

Once you’ve chosen a 401(k) auditor, you should immediately expect them to schedule a pre-audit kickoff meeting. The auditor will explain the process, set expectations, answer your questions, and obtain the information they need to gather payroll and plan data.   

Be Extremely Responsive During the Audit

Provide requested documents and information to your auditor promptly. Address any questions or clarifications swiftly to keep the process moving without any hitches. 

Review and Discuss 401(k) Audit Findings Immediately 

As soon as the auditor provides a draft report, review it carefully. Schedule a meeting with the auditor right away to discuss the findings and clarify any issues.  

Implement Recommendations Post Audit 

The audit is finished, hurray! But the project isn’t quite done. It’s vital to immediately implement any 401(k) compliance and operations improvements the audit identified. It’s also important to conduct regular internal reviews to ensure ongoing compliance and readiness for future audits. 

Urgent Call to Action

You still have time to complete your company’s 401(k) audit in time for the IRS’s deadline. And by following these steps, you can ensure a smoother process and minimize potential compliance issues. But the clock is ticking. It’s imperative that you get started on this to-do list TODAY! 

At PriceKubecka, it’s our mission to ensure clients have a better 401(k) audit experience. While it might be too late to complete your audit by the July 31 deadline, if you CONTACT US today, we can get your high-quality, low-cost audit started and finished before the final October 15 deadline.  

Frequently Asked Questions

What should I do if I missed the October 15 Form 5500 deadline?

First, confirm that October 15 was actually your plan’s deadline and that a valid extension applied. If the deadline has passed, determine what is preventing the Form 5500 from being completed. If a required 401(k) audit is unfinished or hasn’t started, contact an experienced employee benefit plan auditor immediately and work with your other advisors to determine the appropriate filing and penalty-relief options.

Can you file Form 5500 after the deadline?

Yes. A delinquent Form 5500 can still be filed after its due date. Filing late does not eliminate the filing requirement, however, and potential DOL and IRS penalties may apply. Eligible plan administrators may be able to use the DOL’s Delinquent Filer Voluntary Compliance Program to reduce certain penalties.

What are the penalties for filing Form 5500 late?

The Department of Labor may assess substantial civil penalties for failure to file a complete and accurate Form 5500. Current Form 5500 instructions state a potential DOL penalty of up to $2,739 per day. The IRS can separately assess $250 per day, up to $150,000 per plan year, for certain late Form 5500-series filings. Actual penalties and available relief depend on the circumstances.

What is the DOL's Delinquent Filer Voluntary Compliance Program?

The DFVCP is a Department of Labor program that allows qualifying plan administrators to voluntarily submit delinquent Form 5500 filings and pay reduced civil penalties. Eligibility generally requires correcting the filing before the DOL has provided written notice of the failure to file.

What if my 401(k) audit hasn't started and the Form 5500 deadline has already passed?

If your plan is required to have an independent audit, missing the Form 5500 deadline does not remove that requirement. Contact an employee benefit plan auditor as soon as possible, explain that the filing is already late and determine what records are needed to begin the audit immediately. Work simultaneously with your TPA and other advisors to address the delinquent filing and determine whether penalty-relief options are available.

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