Top 7 Insights from the 2020 Audit Season

November 19, 2020

At Cassell Plan Audits, we love solving problems. But we love preventing them even more.

2020 has been tumultuous in just about every aspect, but your employee benefits compliance shouldn’t be. As your friendly neighborhood auditors, we’re here to help in any way we can. And that means highlighting the most common compliance issues we see each year, so you can make changes before policies and procedures become big problems.

Here Are the Top 7 Insights Gleaned From the 2020 Audit Season:

#1: Unclear definition of eligible compensation for contribution calculations

Eligible compensation is defined in your benefits plan documents. It usually includes gross wages, plus any adjustments for things like bonuses, fringe benefits, and the like.

This can get tricky when the definition of compensation differs for different types of contributions allowed in the plan. Or when the plan allows participants to elect or opt out of having their wages deferred from bonus compensation.

And even when the definition is clear, the execution can get muddy. For instance, the plan might say that you need to calculate deferrals on your W-2 wages … period. But when money is paid outside of regular payroll for things like bonuses or manual checks, deductions can get turned off without the 401k plan deduction getting turned back on—even when it’s not excludable.

Our recommendation? Adhere to strict, well-defined controls as to which compensation is considered eligible to avoid these kinds of mistakes and maximize employee gains.

#2: Sharing personal protected information

The 2020 audit season was 99% virtual, which highlighted a lot of security and access issues that haven’t necessarily been a problem in the past, especially for companies who are used to doing business on paper.

Sharing personal employee information is required in an audit, but how you share that data is critical. The goal should always be to keep personal protected information like names, addresses, social security numbers, and pay rate secure.

The key takeaway? Email isn’t secure enough for exchange of personal protected information. At Cassell Plan Audits, we use a secure portal for sensitive data, and your organization should adopt a similar policy to prevent an unintended breach.

#3: Access to personnel files

This one goes hand-in-hand with #2. Many businesses we audited this year have used a physical filing system for many years. What this means is that, in order to access key personnel information, they must physically touch folders that live at the office.

So what do you do when a pandemic hits, and you have to work remotely for six months (or more)? Auditors are left with no support in trying to access this data, and if the IRS shows up, you have no option but to go to the office and lay hands on your files.

We’ll write more about this in the weeks and months to come, but if your office doesn’t yet have a clear path to digitized filing, it’s time to make it a priority.

#4: Lack of investment policy

The Employee Retirement Income Security Act of 1974 (ERISA) imposes a responsibility upon employers to manage plan assets in the best interest of their participants and beneficiaries. Part of that is diversifying investments to minimize risk. 

What this means to you is that your company should clearly outline roles and responsibilities for everyone involved in plan administration or management.

You should have an investment policy that addresses the following points:

  • Permitted investments
  • Asset mix and concentration
  • Method of reviewing, monitoring, and taking action to ensure healthy return

In other words, a 401k benefit plan is anything but “set it and forget it,” and your organization needs to be able to prove ongoing oversight and involvement in the investment.

#5: Inadequate documentation of the oversight process

To that end, you are required to document your oversight process so you can demonstrate the steps your organization is taking. This means your Plan Administrative Committee should conduct regular meetings and keep formal minutes as a written record.

Meetings should include:

  • Evaluation of plan’s investment performance and fees
  • Alternative investment options
  • Create and monitor investment policy, reviewing any amendments
  • Evaluate service providers, including third-party administrators and advisors
  • Review reports from their-party administrators and advisors
  • Review employee complaints, and take appropriate steps to resolve them
  • Approve discretionary contributions

Note that oversight of your benefits plan is not something you can fully outsource. Even if you’ve hired a third party to administer your plan, it’s important that you can demonstrate oversight during an audit.

#6: Missed eligibility for certain re-hired or temporary employees

Here’s a fun fact: depending on how long they were gone, re-hired employees who were previously eligible to participate in a benefits plan must be allowed to participate immediately on the date of their re-hire. They’re exempt from the waiting period that applies to new hires.

And, if you hire someone who formerly worked for you via a temp agency, you may need to credit them with the amount of time they worked as a temp, as though they were a permanent hire at the time.

So if a temp works for two months and then is brought on as a permanent hire, they are treated as an employee who has worked for two months, not as a brand new employee. If they are eligible for benefits after 60 days, they must receive those benefits at that time, even if they were a temp worker for the first 60 days of their time with you.

The best way to keep on top of employee eligibility is to track time logged for eligible temporary employees as well as permanent employees, ensuring they get the appropriate benefits if they do join the team.

#7: Document retention and auditing your files

Another thing that surprises people is how long they need to keep documentation around their benefits plans.

Many organizations have a policy to purge documentation after 7 years, especially for former employees. But as far as the IRS is concerned, you must keep those documents indefinitely if a person still has an account on your plan.

For former employees, you must either get them out of the plan, or retain their documentation.

This includes data like date of birth and date of hire, both of which appear on the I-9. This is an especially important document to keep, because it’s required by the government and contains data pertinent to plan audits.


These are the 7 mistakes we saw most frequently this year, and a misstep with any of them could result in costly fines for your organization as well as issues for your employees.

In upcoming posts, we’ll dig into these and share how to put your best foot forward moving into 2021.

If you’re worried about lack of oversight or improper plan administration in the meantime, we can help!  Contact us today for more information and to schedule your virtual appointment with Cassell Plan Audits at 630.886.7669.

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