The companies that many people work for proactively offer benefits packages to help their employees prepare for the future. This is a good thing because there are plenty of intelligent people who do not think about very important things that they should, their retirement being one of those things. It is never too early to start saving for retirement and those who get into a habit of setting aside money and investing it wisely early in their careers or even earlier if they are earning a wage as teenagers, are going to have less difficulty making sure that they have everything they need at later stages of their lives. Companies with 100 or more employees who take advantage of the 401K provision of the Internal Revenue Code are required to hire a third-party CPA firm to perform an audit of their 401K retirement plans.
The company who offers and administers these plans are responsible for the cost of the audit, which ranges in price depending on the complexity and size of the plan. Companies usually work with large financial services institutions who specialize in long-term financial planning in order to find mutual funds, stocks, bonds and guaranteed insurance contracts to use as their 401K investment vehicles. 401K is actually the section of the Internal Revenue Code that includes a provision that states that one can defer a portion of their income tax-free for savings. This was written into the tax code in 1978 and in 1980, a benefits counselor named, Ted Benna discovered that this provided a great, tax-advantaged way for someone to save for their retirement and he began spreading the word.
Since some of the unfortunate, near financial meltdowns that have occurred within the last decade or so, stricter financial regulations and checks and balances have been instituted to help safe-guard working American’s money, especially their retirement savings. 401K audits are performed on retirement savings plans for companies that have over 100 eligible participants to make sure that their best interests are being represented and protected properly. The companies who offer these plans as a benefit usually match a portion of the contributions that their employees make towards it up to a certain percentage and it becomes a mutual part of their employee/employer agreement. When a 401K audit is considered mandatory for a company, they are expected to hire a third-party CPA firm to examine their plan and come to some conclusions about it.
Some of the basic questions that a CPA firm will want to answer when performing this audit are:
- Are the plan’s assets valued accurately and fairly?
- Are the company’s matching financial contributions being made in a timely fashion?
- Are the eligible participant’s accounts stated accurately and fairly?
- Have payment consistently been executed in strict accordance with the terms of the plan?
- Are there any tax status issues that need to be identified and rectified?
These are just some of the questions that are a part of the audit that require close examination but it is a much more complex process. This is the reason why it is so important to have checks and balances in place to protect people’s 401K accounts, because there are simply too many ways for deviant minds to take advantage of the system by not accurately representing and reporting these numbers with employees best interests in mind. Form 5500 must have the findings of the audit attached when a company’s taxes are filed if they are considered a large plan (100+ eligible participants).
Most large corporations employ accountants to handle internal matters but they are not always Certified Public Accountants (CPA). Accountants who pass the Uniform Certified Public Accountant Examination often go onto to seek employment at one of the world’s four largest CPA firms; Deloitte and Touche, KPMG, Ernst & Young, and PricewaterhouseCoopers. Each of these firms employ between 160,000 and 200,000 people and the average salaries for their CPAs are between $150,000 and $175,000. So, those who are smart enough to pass the examination work for these large CPA firms because there is usually a very bright future in store for them there if they do.
There are many financial specialties within the accounting field, even if you break it down to just CPAs. Some CPAs who are specifically trained to sniff out fraud and are called forensic accountants while others have a particular talent in understanding real estate and mortgages, so they go to work in mortgage banking. The big four CPA firms employ accountants in every relevant financial sector where their clients require expertise, so they can give fair, objective and knowledgeable advice regarding some very important matters pertaining to a company’s and their employees financial well-being.