One of the best offers that an employer can give to employees is the option of putting money into a 401(k) retirement savings account. In this account, employees can defer parts of their salary before it gets taxed into the savings account, and that money doesn’t get taxed until it is withdrawn, which is a huge perk to have, indeed. This is also an investment account, which means an employer can open up investment opportunities to his employees that can further benefit their retirement plans, and in order to boost up company morale, sometimes an employer will match contributions that the employee has made.
Employees can use their money to make investment opportunities like stocks, bonds and individual brokerage accounts. Mutual funds are even available for employees through the 401(k) plan. Furthermore, employees can redistribute the money at any time they please and see fit. What keep these plans in check with governmental regulations are audits. Audits are done by third-party accountant, and they are called 401(k) audits, which are looking to make sure that everything is in compliance with government regulations and that the retirement plan is following its own rules as stated in the contracts. Employers can voluntarily ask for audits as a way to ensure themselves that their plans are working. If a plan has more than 100 employees signed up for it, then the Securities and Exchange Commission (SEC) will demand a mandatory audit that is conducted by a third-party accounting firm.
Again, auditors are looking to see if all the activity being done in the plan are following SEC regulations, and if the employer is keeping his promises on the contracts that he offered his employees. Pretty much every 401(k) auditor is a certified public accountant, who ask herself a plethora of questions in her investigation into the 401(k) plans that she is overlooking. She wants to see if any issues pop up, and if they do, she has to ensure that they are corrected. She will make suggestions on how to improve the plan, as well. She wants to see if the retirement plans are secure and stable.
When a 401(k) auditor is doing their job, they are investigating all aspects that make up and are relating to the 401(k) that is being investigated. They may ask to see financial documents on the employer’s financial activity and business practices in order to see the bigger picture and make a fair assessment of the situation. Some of the questions a 401(k) auditor will be asking himself but are not limited to are:
-Are the accounts of the employees being fairly represented? All need to be represented equally and honestly.
-Does every employee get a chance to seize this opportunity or are some employees being discriminated against?
-Are there constant payments being made into the accounts?
-Are those payments breaking contract regulations?
-Is there potential tax trouble?
-Are there any transactions being made that may look to be ERISA-prohibited?
After making these assessments, the 401(k) auditor will take a look again at the bigger picture of where the business is headed in general and whether or not the retirement plans will continue to benefit employees in the future. Suggestions and adjustments will be made afterwards in improving the financial activity of the company as well as the improvement of the retirement contracts. There’s a lot of documentation that needs to be prepared for a 401(k) audit, and in many cases, it’s very tedious for the employer to gather them all on his own. He will have to know where all the company records are located, which is why it’s useful to hire a bookkeeper (it’s useful to have a bookkeeper for purposes even outside preparing for a 401(k) audit anyway. Documents that auditors will ask to look into would be current versions of the retirement plan contracts, past versions of that same contract to compare them, tax returns, statements on company financial activity and more. It’s a lot to handle.
When the audit has been finished, it is put into the financial filings of the company with the Internal Revenue Service (the name 401(k) came from the section of the Internal Revenue Code, which is a law). An excellent auditor will send summaries and other communications about concerns, fixes for noncompliance and more to the plan administrator and other managers that are working on the retirement plans. The general goal is to make sure that there is always fair play with employees, and to make sure that communication within the company is improving.