Top 3 Areas to Review Before Your Next 401(k) Plan Audit
A well-run 401(k) plan is an important benefit for employees, and keeping an eye on a few key areas throughout the year can help things stay on track. A little attention along the way can also help prevent small issues from turning into bigger concerns at audit time.
Late Contributions
The Department of Labor requires employee deferrals to be deposited as soon as they can reasonably be segregated from the plan sponsor’s general assets. For many plans, this means deposits occur within a day or two of payroll (or earlier).
Consistency is key. If employee deferrals are typically remitted the same day as payroll, the expectation would be that deferrals for all pay periods could be remitted within that timeframe. Common causes for late contributions include staff absences, misunderstandings about whether a deposit was completed, or a process that does not clearly assign responsibility for remitting contributions.
A simple way to stay ahead: Periodically compare payroll dates to the dates contributions were received by the plan. Addressing a delay promptly can help minimize the potential impact, including the need to calculate and remit lost earnings.
Improper Contribution Calculations
Employee deferrals and employer contributions depend on the plan’s definition of eligible compensation. An incorrect understanding of that definition - or an incorrect payroll setup - can result in contributions being calculated on the wrong amount. For example, the plan document may require certain types of compensation, such as bonuses or PTO payouts, to be included or excluded when calculating contributions.
A simple way to stay ahead: Review the plan document and confirm that your payroll system is configured to calculate contributions using the appropriate compensation types. This is especially important when payroll systems, compensation structures, or plan provisions change.
Improper Interest Rates on Participant Loans
If your plan allows participant loans, the interest rate assigned to a new loan should be determined in accordance with the plan document or applicable loan policy.
A simple way to stay ahead: As new loans are issued, ensure the interest rate assigned to the loan is proper and in accordance with the plan document or loan policy.
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Need a second set of eyes? AHP works with plan sponsors to help identify potential issues, strengthen processes, and navigate the annual 401(k) audit process. If you have a question about your plan or simply want to talk through an area you're unsure about, we're happy to help.