We learn the most indelible lessons from our mistakes, right? This year, save yourself (and your auditor!) time and headaches by learning from someone else’s mistakes.
Fresh out of this year’s audit season, it’s time for our annual look back at the most common errors or discrepancies we found.
As a firm specializing in 401(k) plan audits and 401(k) plan audits only, we’ve seen it all here at Cassell Plan Audits—dozens, if not hundreds, of times.
So, the first two errors were no huge surprise; they seem to come up every year in some form or fashion. We were shocked, however, by how rampant the third error was this year. And we think they’ll surprise you, too!
If you want to compare year over year, you can check out last year’s review and the prior year’s.
Error #1: Missing documentation.
Plan sponsors must be able to provide verifiable and dated documentation of employee 401(k) accounts, especially any changes made over the course of the year, whether initiated by you or the employee.
You may be thinking, Of course, we document EVERYTHING. But have any of these changes happened in your organization this year?
- You’ve adopted a new payroll provider or technology to manage 401(k) plan participation.
- A recent merger, sale, or acquisition added new 401(k) plan participants or transferred others.
- Your office or records have relocated or gone digital.
- Old records were destroyed that may have included terminated employees who still count as participants if they carry a balance.
Each of these scenarios involves multiple moving parts—that can create unintentional gaps or vulnerabilities in your documentation, even for seasoned plan sponsors.
Error #2: Improperly classified compensation.
Contribution discrepancies often occur when companies fail to manage off-cycle payrolls or unusual income like special bonuses properly.
If your benefits plan policy states bonus income should be treated as regular compensation, but payroll didn’t calculate employee withholding accordingly—and your organization didn’t match employee contributions as required… things can get hairy.
And unfortunately, you can’t count on your employees to point out the missing contributions. Ultimately, the plan sponsor is responsible. The business will need to pay back the shortfall—and may even get fined.
To prevent mistakes from happening, make sure to code ALL forms of employee compensation throughout the year correctly, including bonuses, extra pay runs, and the rest.
If a mistake has been made, don’t panic. Here are our recommendations on what to do.
Error #3: Unresponsive plan sponsors.
There are stragglers every year: plan sponsors who don’t quite get us everything we need in time for us to perform their 401(k) plan audit in time to meet the October deadline—and that’s with the extension! (Audits are due at the same time as Form 5500).
This year, however, the number of stragglers more than tripled… Plan sponsors were slow to respond, if they responded at all…!
In one striking case, the team even wondered if the company’s owner had retired or passed away…! There was that much “dead” silence on the other end of our communications. Were we being literally ghosted?!
Puns aside, we were happy to learn that the owner remained in the land of the living. But she and other sponsors were strangely common this year, ignoring requests for information and only providing the materials needed to perform their audits long after we could realistically meet filing deadlines.
Earlier this year, the DOL announced new rules, reducing the number of organizations that are required to have an independent 401(k) plan audit. However, the new rules only went into effect this year. That means 2022’s audits (due this year) still followed the previous policy.
Perhaps plan sponsors whose plans will no longer require an audit assumed that began with the current year’s filings? Whatever the reason, it’s never a good idea to ignore your 401(k) plan auditor—there are real costs and penalties to filing your audit late.
That said, it’s never too late to correct a past mistake. If you thought perhaps you were “off the hook” this year and missed your filing deadlines, don’t despair. We can help. Contact Cassell Plan Audits today.
