Employee Benefit Plan Common Errors & Self-Audit

This course discusses issues faced by companies that sponsor employee benefit plans, including 401K, 403B, profit sharing, defined benefit, health and welfare plans.

Learn more about the following Employee Benefit Plan topics:

The following topics were included in the presentation on May 14, 2013 for the New Jersey Society of CPAs CPE Program:

  • What are the rules and regulations faced by sponsor companies of all sizes and what is the government doing to enforce them?
  • Are plan assets at risk for fraud and what steps should be taken to safeguard these assets?
  • And for plans that are required to be audited annually, what are the latest changes and updates to the auditing and accounting standards that cover these audits?

For more information, contact Denise Finney, CPA in our Employee Benefit Plan Services Group.

Common Errors in a 401(k) Plan 

  • Improper definition of compensation
  • Late remittances of participant contributions
  • Failure to comply with participant elections
  • Improper application of eligibility provisions
  • Improper tracking of participant demographic data
  • Improper vesting
  • Improper use of forfeitures
  • Improper use of plan assets to pay administrative expenses
  • Failure to comply with the loan policy

Root Causes of Operational Failures 

  • Lack of understanding plan provisions
  • Lack of oversight (internal and external)
  • Turnover
    • At Plan Sponsor
    • At Service Provider (custodian/payroll)
  • Not reading the Plan documents
  • Failure to consult legal counsel
  • Failure to hire a quality auditor with employee benefit plan experience
  • Ineffective internal controls or no internal controls (reconciliations)

Best Practices to Avoid Common Errors 

  • Read your plan document at least annually
  • Consult legal counsel when unsure
  • Perform reconciliations
  • Review timeliness of employee contributions
  • Perform plan analytics
  • Perform a self-audit

Performing a Self-Audit 

  • Plan Documents
    • Plan document/adoption agreement
    • Plan amendments
    • Summary Plan Description
    • IRS Determination Letter
  • Contributions
    • Deferral percentage changes
    • Allocated properly to investment fund elections
    • Employer contribution calculation
    • Schedule of all payroll withholdings and deposits
    • Compare total contributions (employee and employer)
  • Compensation
    • Definition per plan document
    • Review of payroll coding
    • Second checks and manual checks
    • Recalculate contributions based on correct compensation and compare to participant statement
    • Compare amounts withheld to participant statement
  • Eligibility
    • New hires
    • Entry dates
    • Hour requirements
    • Eligibility may differ between employee and employer contributions
  • Demographic data
    • Date of birth
    • Date of hire
    • Date of termination
    • Location
  • Distributions
    • Hardship paperwork
    • Vesting
    • Withholdings
    • Account balance zero if requested a complete distribution
    • Required minimum distributions
  • Forfeitures
    • Generally used to pay administrative expenses and/or employer contributions
    • Must be used or allocated in same Plan year as incurred
  • Administrative expenses
    • Settlor expenses cannot be paid out of plan assets
    • Multiple plans – one plan cannot pay the expenses of another plan
  • Participant Loans
    • Schedule of loans – repayments & defaults
    • Repayment terms
    • Interest rates
    • Maximum and minimum allowed

Performing a Self-Audit – Documentation of Decisions

  • Plan Committees
    • Meet regularly
    • Keep written minutes
  • Investment Policy Statements
  • ERISA attorney relationships
  • Monitor service providers (SSAE 16 Reports, regular meetings)
  • Employ effective internal controls, including self-audit
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