Auditing 401(k) Plans

Common Deficiencies for Participant Data

Common Deficiencies for Participant Data

  • No audit work performed or no adequate documentation of participant data
  • No testing of participant eligibility or forfeitures
  • No testing of investment income allocation to participants
  • Inadequate or missing disclosures
  • Testing of payroll data insufficient

 

 

 

 

 

 

 

 

 

 

 

 

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Common Deficiencies for Contributions

Common Deficiencies for Contributions

  • No audit work performed or no audit documentation
  • No audit program
  • Insufficient testing on contributing employers for multi-employer plans
  • Failure to test payroll internal controls
  • Failure to test employee elective deferrals
  • Inappropriate reliance on SAS 70
  • Timeliness of participant contributions not tested

 

 

 

 

 

 

 

 

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Common Deficiencies for Benefit Payments

Common Deficiencies for Benefit Payments

  • No audit documentation or no audit work performed
  • Failure to test participant eligibility to receive benefit payments
  • Inappropriate reliance on SAS 70
  • Failure to test approval of benefit payments

 

 

 

 

 

 

 

 

 

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  • You should know…

    Common audit deficiency - testing of payroll data is insufficient.
    Generally, a plan is considered a “large” plan if it had 100 participants at the beginning of the plan year and a “small” plan if it had fewer than 100 participants at the beginning of the plan year.
    Common audit deficiency - inadequate or missing disclosures.
    Common audit deficiency - no audit work performed for contributions.
    Plans whose sole assets are insurance contracts that fully guarantee benefit payments are not required to be audited.
    Common audit deficiency - failure to test employee deferrals.
    Quality audits for 401(k) plans are imperative, not only because they help ensure plan compliance for the benefit of the participants, but quality audits are important because the DOL can reject the annual Form 5500 filing when the DOL determines an audit failure has occurred.
    Common audit deficiency - failure to test timeliness of participant contributions
    Common audit deficiency - failure to properly report on and/or include the required supplemental schedules relating to ERISA and DOL.
    Common audit deficiency - no audit work performed for related parties.
    The “80-120 rule” will allow the plan to continue to file as a “small” plan (and avoid the audit requirement) indefinitely until the plan exceeds 120 participants at the beginning of a plan year.
    Common audit deficiency - failure to test eligibility to receive benefit payments.
    Common audit deficiency - inappropriate reliance on SOC 1 reports.
    Common audit deficiency - no audit documentation for testing participant data.
    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.
    Common audit deficiency - improper use of limited scope exemption because financial institution did not qualify for such an exemption.
    Administrators of a 401(k) plan subject to ERISA must file an annual report (Form 5500).
    Under the “80-120 rule”, if a plan has between 80 and 120 participants as of the beginning of the plan year, it may elect to file the same category (Schedule H or Schedule I) of form 5500 it filed the year before.
    Common audit deficiency - no testing of investment income allocation to participants.
    Common audit deficiency - failure to understand testing requirements on a limited-scope engagement.
    “Large” plans that have a short plan year of seven months or less may elect to defer (but not eliminate) the audit requirement.
    ”Large” 401(k) plans, generally meaning those plans with 100 or more participants, must file an audit with the annual 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.
    Common audit deficiency - failure to obtain proper certification for a limited scope audit.
    Common audit deficiency - no audit work performed for benefit payments.
    A “large” plan will file a Form 5500 with a Schedule H and a “small” plan will file a Form 5500 with a Schedule I.
    Common audit deficiency - no testing of participant eligibility or forfeitures.
    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.

401(k) Plan

Audit Deficiencies

Employee benefit plans have a high rate of audit deficiencies.  Below are some common deficiencies reported by the Department of Labor and the AICPA Peer Review program:

  • No audit documentation for testing participant data
  • No testing of participant eligibility or forfeitures
  • No testing of investment income allocation to participants
  • Testing of payroll data is insufficient
  • Failure to obtain proper certification for limited scope audit
  • No audit work performed for contributions
  • Failure to test employee deferrals
  • Inappropriate reliance on SOC 1 reports
  • Failure to test timeliness of participant contributions
  • No audit work performed for benefit payments
  • Failure to test eligibility to receive benefit payments
  • No audit work performed for related parties
  • Inadequate or missing disclosures
  • Failure to properly report on and/or include the required supplemental schedules relating to ERISA and DOL
  • Improper use of limited scope exemption because financial institution did not qualify for such an exemption
  • Failure to understand testing requirements on a limited-scope engagement

 

 

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