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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.  

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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