The 401(k) Audit – One Term – Multiple Meanings

The 401(k) Audit – One Term – Multiple Meanings

The 401(k) Audit – One Term – Multiple Meanings

When people talk about 401(k) audits it can be a bit confusing. The same term is widely used for three different scenarios. Let’s sort them out.

Annual Audit:

There is a DOL 401(k) Annual Audit required for large plan filers. These are commonly referred to as Annual Audits. Typically, the plan qualifies for this Annual Audit if:

  • In plan year one, they have never filed a 5500 under the current plan number, and they have over 99 eligible employees;
  • They have filed a 5500 before, have never been audited, and they have more than 120 eligible employees;
  • If in the prior plan year, they were audited and they have more than 99 eligible employees.

The DOL requires an audit of 401(k) plans by an independent certified public accountant to ensure that all DOL and ERISA requirements are being met. The audit helps assure that a complete and accurate Form 5500 is filed for the plan, and that plan benefits are properly being administered.  There are several challenging issues with these audits, from an employer’s perspective the four main issues are:

  1. These audits typically take place at the employer’s location. This enables auditors to examine not only items that are pertinent to the audit, but also may expose to the CPA client information that may be outside the scope of the audit.
  2. Any failures that are discovered as a result of this examination may be shared with the IRS – potentially leading to further examination by a regulating agency.
  3. The DOL has warned that many audits by inexperienced CPAs are “financial audits” and do not address “compliance” issues. An inexperienced auditor may not appropriately identify plan weaknesses, which could leave you unprepared for a DOL Investigation.
  4. Annual audits can be very expensive. Depending on the specific plan, these audits can run into the tens of thousands of dollars each year.

DOL Investigations:

DOL Investigations are commonly referred to as random DOL audits. The DOL can randomly choose to investigate any 401(k) plan at any time- and in fact, they have made a commitment to investigate every plan. Plans can be investigated whether or not they have had an Annual Audit. According to the DOL, 75% of the investigations the DOL performs, result in the discovery of employer violations, often requiring them to pay fines and penalties. Again from an employer’s perspective, these investigations have some of the same challenging issues as the Annual Audit, but also carry the additional weight of potential penalties.

IRS Compliance Audits:

The IRS Compliance Audit can also be a random audit. These are designed to review activities in the plan to make sure they are in compliance with the Internal Revenue Code. The IRS can randomly choose to audit any 401(k) plan in the United States at any time. Plans can be audited whether or not they have had a DOL Investigation, but an IRS Compliance Audit is more likely to occur if your company has undergone a previous tax audit or DOL Investigation.  Again from an employer’s perspective, these audits have some of the same challenging issues as the Annual Audit or the DOL Investigation.

How TAG Mitigates Multiple Types of Audits

At TAG Resources, we have built our 401(k) program to mitigate the challenging issues often seen from an employer’s perspective involving the  Annual Audit, the DOL Investigation, and the IRS Compliance Audit. We have taken some innovative steps within our program to address these challenges, including:

  • For TAG client’s, Annual Audits are conducted at TAG Resources’ offices -not on our clients’ premises. This allows our clients to continue with the daily operations of their businesses and stops the interruptions caused by having auditors in their facilities. This also focuses the information shared with auditors to that which is specific to the 401(k) plan, not allowing them to examine information outside the scope of the audit.
  • Annual Audits for TAG clients are both “financial audits” and “compliance audits.” TAG collects information from our clients in both areas to assist our clients for all contingencies. If a TAG client is selected for a DOL Investigation or an IRS Compliance Audit, the information obtained from our comprehensive year-end data collection and Annual Audit process satisfies most if not all of the additional inquiries. Furthermore, TAG will facilitate the additional communication with, and data collection required by the DOL or IRS should any be needed.
  • TAG establishes in-depth and regular communications with our clients to keep our clients informed of the requirements and timelines of Annual Audits and maintains this same level of communication if a TAG client is selected for a DOL Investigation or IRS Compliance Audit.
  • TAG Annual Audits are inexpensive. A flat fee under $4,000, is the cost of an audit for a TAG client enrolled in the TAG Program for plan year 2016 (please contact TAG for specifics.). The audit fees remain very low when compared to the cost of other plans’ audits which can run tens of thousands of dollars. TAG is able to reach this low cost by working with many large plan filers and aggregating the audits to achieve a very competitive flat rate price.
  • TAG provides our clients representation with the DOL and IRS and does not charge additional fees for client assistance with these regulatory agencies.

If you would like more information about the TAG Program, please contact TAG at or 866-315-1463.

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