21
1 @DHGLLP Preparing for Your First 401 (k) Audit March 12, 2019
1
@DHGLLP
Preparing for Your First 401 (k) AuditMarch 12, 2019
2
@DHGLLPAgenda
• AuditRequirements
• SelectinganAuditor
• PlanningfortheAudit
• AuditProcedures
• CommonErrors
3
@DHGLLPImportant Considerations
• What is the audit requirement?• Who is counted as a participant?• When is the deadline?
+ last day of the seventh month after the plan year ends (July 31 for a calendar-year plan) with an optional 2 ½ month extension (October 15 for a calendar-year plan)
4
@DHGLLPWhy is an Audit Important?
• Identifies:+ Control weaknesses+ Operational errors
• Provides reliable information to assess the plans financial condition
5
@DHGLLPHow to Select an Auditor
• “The Importance of Hiring a Quality Auditor” – AICPA Employer Benefit Plan Audit Quality Center
• www.aicpa.org
6
@DHGLLPEvaluating Auditor Qualifications
• Identifying quality audit firms+ Experience and professional development+ Licenses+ Independence
7
@DHGLLPFirst Time Audit - The Planning Process
• Preparing for the audit:1. Plan document 2. Participant history3. Processes and procedures4. Other considerations
8
@DHGLLPFirst Time Audit – Plan Document History
1. The Plan document: consider the effective date of the Plan and gather the following documents:+ Basic plan document, plus adoption agreement and amendments+ IRS determination letter+ Summary plan description
9
@DHGLLPFirst Time Audit - Participant History
2. Participant history:+ Locate and maintain participant account balances at the beginning of the
year.+ Maintain enrollment and deferral change forms (or electronic history).+ Maintain documentation supporting distributions.
10
@DHGLLPFirst Time Audit - Processes & Procedures
3. Processes and procedures-
Hire:Eligibility
Enrollment
Active:Contributions
In-service distributions
Loans
Inactive:Distributions due
to death, disability, or termination
11
@DHGLLPFirst Time Audit – Processes & Procedures
• Hire:+ How is an employee informed about the Plan?+ When is an employee eligible to contribute?
• Active:+ Contributions:
• How do employee contributions get withheld?• How are employer contributions calculated?• How do the contributions get to the plan?
12
@DHGLLPFirst Time Audit – Processes & Procedures
• Active (continued):+ In-service distributions:
• If hardships are allowed, under what circumstances?• Are distributions allowed for the actively employed? (age 59 ½, age 70
½, disability, or length of service)+ Loans:
• Are they allowed?• Who processes the documents and ensures repayment is made?
13
@DHGLLPFirst Time Audit - Processes & Procedures
• Inactive:+ How are distributions requested and processed?+ Who ensures that vesting is properly calculated?+ Are forfeitures used annually?+ Are force outs processed regularly?
14
@DHGLLPFirst Time Audit – Other Considerations
• Use of a third party service provider:+ Do you understand the extent of services provided within service
agreement?+ Have you implemented “user controls”?
• Minutes-primary function is to document fiduciary care:+ Do you have an investment policy? Are investment options reviewed
periodically?+ Are fees reviewed for reasonableness?
15
@DHGLLPThe Audit Package Includes
• Limited scope certification letter• Schedule of investment activity – plan level• Schedule of investment activity – participant level• Schedule of contributions received• Loan schedule• Schedule of distributions paid• Service auditors’ report (SOC 1 report)• Schedule of fees paid
16
@DHGLLPDocuments Requested that are Maintained Within the Organization
• Year-to-date payroll summaries• Employee listing (census)• Payroll registers for each pay period• Employee documentation for each testing area:
+ Eligibility: personnel files+ Contributions + Distributions+ Loans+ Plan level contributions
17
@DHGLLPWhat do we do with this information?
• Test it!• Types of testing:
+ Eligibility+ Loans+ Contributions (participant/plan level)+ Distributions+ Administrative expenses+ Investment allocation
18
@DHGLLPCommon Errors Found
• Eligibility• Loans• Contributions (participant level)• Contributions (plan level)• Distributions• Investment allocation
19
@DHGLLPSummary
• Determineifanauditisrequired• Engageaqualifiedauditor• Understandtimelineandgatherinformation• Addressanyauditfindings• Completetheaudit• FiletheForm5500
20
@DHGLLP
Ashley SmithPartner, DHG [email protected]
Contacts
Luke MartonikPartner, DHG [email protected]
Jennie MunizSenior Manager, DHG [email protected]
21
@DHGLLP
www.dhg.com/ebp
