What is a 401(k) plan and why does it have to be audited? A 401(k) retirement plan is sometimes called a “cash or deferred arrangement” or “CDA” but is popularly known by the Internal Revenue Code Section “401(k)” that pertains to it. A 401(k) plan allows participants to contribute a portion of their compensation to the retirement plan without being taxed on the contributed amount. An account is created for each participant which will track the contributions, distributions, investments, gains and losses.
401(k) plans must file an annual Form 5500 with the Internal Revenue Service (IRS) and the Department of Labor (DOL). ”Large” plans, generally meaning those plans with 100 or more participants, must also file an audit with the Form 5500. The auditor of a 401(k) plan must be familiar with ERISA, tax, and DOL laws and regulations and they must be familiar with special requirements of 401(k) plans. The DOL and the AICPA indicate that 401(k) audits have an unnacceptably high rate of deficiencies and the DOL can reject any Form 5500 with a deficient audit. It is important for the auditor of a 401(k) plan to have the knowledge, proficiency and competency to perform an efficient and effective audit which will stand up to the scrutiny of the DOL.
Please examine the other pages of this website for more information about 401(k) plans and performing audits of 401(k) plans.