For small and mid-sized enterprises (SMEs), offering employee benefits like retirement accounts is essential for attracting and retaining talent. However, managing these benefits comes with regulatory requirements that demand strict compliance. Falling short in compliance can lead to costly fines, legal risks, and potential damage to employee trust.
Understanding the Retirement Account Audit Process
Businesses that offer 401(k) or other retirement plans are subject to audits, particularly if they meet the Employee Retirement Income Security Act (ERISA) threshold of 100 eligible participants. An audit ensures that the company is managing the plan properly and adhering to Department of Labor (DOL) and Internal Revenue Service (IRS) regulations.
Key Areas Audited:
- Plan Documentation: Ensuring that plan documents are up to date and compliant with legal requirements.
- Employee Eligibility & Contributions: Verifying that contributions are accurately deducted and deposited in a timely manner.
- Fiduciary Responsibilities: Assessing whether the employer is acting in the best interest of plan participants.
- Plan Distributions & Loans: Reviewing the management of loans and withdrawals to ensure they comply with plan rules.
- Fee Transparency: Confirming that administrative and investment fees are reasonable and properly disclosed.
Preparing for an Audit: Prevention is Key
Rather than scrambling to fix compliance issues after an audit, businesses should proactively ensure their retirement plans meet regulatory standards. Steps to take include:
1. Conduct a Pre-Audit Review
Working with an experienced compliance professional to review plan documentation, contribution records, and fiduciary responsibilities can help identify and correct issues before an official audit occurs.
2. Ensure Timely Contributions
Late deposits of employee contributions are a common compliance failure that can trigger penalties. Setting up automated payroll processes can help ensure on-time deposits.
3. Maintain Clear and Accessible Records
Keeping and organized record of plan documents, participant data, and transaction histories makes the audit process smoother and reduces the risk of errors.
4. Conduct Regular Compliance Training
HR and payroll staff should be trained on retirement plan compliance requirements to avoid common mistakes.
Fixing Issues Before and After an Audit
If compliance gaps are identified, businesses should act swiftly to correct them. This includes:
- Filing late contributions with the IRS Voluntary Correction Program (VCP) to minimize penalties.
- Updating plan documents to reflect legal changes and avoid disqualification.
- Recalculating and correcting contribution errors before employees are affected.
- Engaging with a compliance expert to negotiate with auditors and reduce potential liabilities.
How Nexera Can Help
At Nexera, we provide expert guidance to help businesses navigate the complexities of employee benefits compliance. Whether you need assistance preparing for an audit, correcting compliance errors, or implementing better benefits administration processes, we ensure your retirement plans remain compliant and efficient.
Protect Your Business and Your Employees
Compliance with employee benefits regulations is not just about avoiding penalties—it’s about protecting your employees’ financial future. Contact Nexera today to learn how we can help you stay ahead of compliance challenges and maintain a benefits program that supports both your workforce and your business goals.
