Auditing 401(k) Plans

From 5500 Filing Date

From 5500 Filing Date

The due date for filing the Form 5500 is seven months after the plan’s year end.  For calendar year end plans, the filing deadline is July 31st.…

Form 5500 Filing Extension

Form 5500 Filing Extension

A plan can obtain a one-time extension of 2½ months by filing the IRS form 5558 on or before the Form 5500 filing due date.  The Form 5558 must be filed with the IRS.  A copy of the extension must be filed with the Form 5500.  Also, if the plan sponsor’s corporate tax return has been extended, then the plan will automatically receive an extension for filing the Form 5500 until the due date of the sponsor’s corporate tax return (a 1½ month extension).  Again, a copy of the extension must be filed with the annual report.…

EFAST2

EFAST2

Effective January 1, 2010, the Form 5500 including any schedules or attachments, must be filed electronically using EFAST2 approved third party software or using IFILE.…

  • You should know…

    Common audit deficiency - testing of payroll data is insufficient.
    Common audit deficiency - failure to obtain proper certification for a limited scope audit.
    ”Large” 401(k) plans, generally meaning those plans with 100 or more participants, must file an audit with the annual Form 5500.
    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.
    Common audit deficiency - no audit documentation for testing participant data.
    Common audit deficiency - failure to understand testing requirements on a limited-scope engagement.
    Common audit deficiency - inadequate or missing disclosures.
    Common audit deficiency - no audit work performed for contributions.
    Common audit deficiency - no testing of investment income allocation to participants.
    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 - no audit work performed for related parties.
    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.
    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 - inappropriate reliance on SOC 1 reports.
    Administrators of a 401(k) plan subject to ERISA must file an annual report (Form 5500).
    Common audit deficiency - failure to test employee deferrals.
    Common audit deficiency - failure to properly report on and/or include the required supplemental schedules relating to ERISA and DOL.
    Common audit deficiency - failure to test eligibility to receive benefit payments.
    Common audit deficiency - improper use of limited scope exemption because financial institution did not qualify for such an exemption.
    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.
    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.
    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.
    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.
    “Large” plans that have a short plan year of seven months or less may elect to defer (but not eliminate) the audit requirement.
    Common audit deficiency - no audit work performed for benefit payments.
    Common audit deficiency - failure to test timeliness of participant contributions
    Plans whose sole assets are insurance contracts that fully guarantee benefit payments are not required to be audited.

Form 5500

Filing the annual report

The form 5500 was jointly developed by the DOL, the IRS and the Pension Benefit Guaranty Corporation so that pension plans could utilize the form 5500 series to comply with the annual reporting requirements of ERISA and the internal revenue code.  Effective January 1, 2010, the Form 5500 including any schedules or attachments, must be filed electronically using EFAST2 approved third party software or using IFILE.

In its first filing year, the EFAST2 system received approximately  one million Form 5500 filings. The most common problem areas were identified as follows:

  • Missing or invalid signature of the plan administrator or plan sponsor;
  • Failure to attach an accountant’s opinion
  • Inclusion of an attachment that was not able to be processed
  • Failure of a final plan filing to satisfy the termination criteria
  • Indication that a plan’s filing was beyond the due date

The due date for filing the Form 5500 is seven months after the plan’s year end.  For calendar year end plans, the filing deadline is July 31.  A plan can obtain a one-time extension of 2½ months by filing the IRS form 5558 on or before the Form 5500 filing due date.  The Form 5558 must be filed with the IRS.  A copy of the extension must be filed with the Form 5500.  Also, if the plan sponsor’s corporate tax return has been extended, then the plan will automatically receive an extension for filing the Form 5500 until the due date of the sponsor’s corporate tax return (a 1½ month extension).  Again, a copy of the extension must be filed with the annual report.

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