Top 10 Audit Mistakes
This article accompanies Costly Mistakes.
1. Remitting employee deferrals late or inconsistently. DOL's rule: Contributions must be remitted as soon as administratively feasible, but no later than the 15th business day of the following month (when deferrals are withheld).
2. Miscalculating employee contributions. Some plan sponsors don't observe the definition in their plan document when calculating how much money employees can contribute to their 401(k).
3. Misunderstanding the service period. Although each plan defines when employees reach one year of service, HR and other departments sometimes calculate it differently.
4. Violating break-in service rules. Typically, plans state that, when employees leave and are rehired within a certain time frame, they're automatically eligible to participate in the 401(k) plan. Some companies forget this rule when re-hiring workers.
5. Ignoring growing forfeiture accounts. When employees leave and forfeit their 401(k) balances, sometimes those funds aren't used as stated in the plan, such as for paying employer-plan fees.
6. Disregarding participant instructions about how much in taxes they want withheld when taking a distribution from their 401(k).
7. Miscalculating profit-sharing contributions. Errors mostly occur when annual calculations are performed manually versus being hard-coded into the payroll system.
8 Mishandling participant requests. Employee requests such as changing deferral rates are sometimes not entered into the system or coded correctly. Mistakes are found months later.
9. Misunderstanding service-provider contracts. Sometimes, HR assumes its service provider is doing something it's not, such as authorizing hardship withdrawals.
10. Not following the plan's eligibility requirements. Some employees are enrolled too early or too late. Companies also forget to auto-enroll certain groups of employees, such as those working at a subsidiary.
Source: Heidi LaMarca, principal at Windham Brannon, an Atlanta-based CPA firm, and the vice chair of The American Institute of CPA National Conference on Employee Benefit Plans.