Art of the Qualified Plan Audit

In Summary Understanding the True-Up: A true-up provision ensures employees receive the maximum potential employer match by looking at their total annual contributions against their total annual compensation. This contrasts with a per-paycheck match, which only looks at the contribution made from that specific paycheck. This feature is essential for employees who “front-load” their retirement … Continued

In Summary Audit Threshold Change: There was a 2023 change to the Form 5500 participant count rule, which now excludes eligible participants who do not have an account balance on the first day of the plan year from the audit-triggering count. Timing Discrepancies: Various scenarios—including plan mergers, trade date vs. settlement date differences, and spinoffs—create … Continued

In Summary The 403(b) Audit Disclaimer’s Origin: The requirement for ERISA-covered 403(b) plans to have audited financial statements began in 2009, but due to a historical lack of employer involvement with older contracts, plan sponsors often could not locate all plan assets. This impossibility led to auditors issuing disclaimed opinions on the financial statements’ completeness. … Continued

In Summary Change in Participant Counting Method: Defined contribution plans filing the 2023 Form 5500 must now use the number of participants with account balances at the beginning of the plan year to determine their filing status (small-plan, under 100, or large-plan, 100 or more), a shift from the prior rule that counted all eligible … Continued

The Office of the Chief Accountant (OCA) in the Employee Benefit Security Administration (EBSA) of the Department of Labor (DOL) has released a 2023 Audit Quality Study covering the quality of audits being performed by independent qualified public accountants (IQPAs).  This is the fourth study to be performed with prior studies being performed in 2015, … Continued

In Summary Correction Options for Retirement Plan Errors: The various methods available for calculating corrective contributions and their associated earnings, aiming to make participants whole, range from using actual individual investment returns (Option 1) to employing reasonable estimates like the plan’s weighted average rate of return (Option 3). When to Use Simple Estimates and the … Continued

In Summary ADP/ACP Testing Limits HCEs: Discrimination tests like ADP and ACP limit how much Highly Compensated Employees (HCEs) can defer to a plan. HCE deferral limits are directly tied to the average contribution percentage of Non-Highly Compensated Employees (NHCEs). Zero Contributions Impact Averages: All eligible employees, even those who contribute zero, must be included … Continued

Nervous apprehension tends to overwhelm new 401(k) audit clients who don’t know how involved they will need to be in the document production for the audit. Often, they are hopeful that one or more of their service providers will “take care of everything” as they promised. The bottom line is that the extent of the … Continued

In Summary Common Audit Findings and Simple Corrections: Typical 401(k)/403(b) audit issues, such as errors in eligible compensation or auto-enrollment, are frequently encountered. These findings generally require depositing corrective contributions, like a Qualified Nonelective Contribution (QNEC), plus lost earnings for affected participants. Even material corrections can be managed by a simple accrual, allowing the audit … Continued

Not Enough RMD Participants must take an Required Minimum Distribution (RMD) from retirement plans and IRAs. 403(b) plans often have more than one account in the name of each participant. While each 401(k) plan must issue its own RMDs, an individual can take one RMD distribution for the entire amount computed using the balances in … Continued