You might not have been due for a Department of Labor 401(k) audit in 2024—or even next year—but conducting an annual 401(k) plan audit ensures your retirement plans are fully compliant with DOL regulations.
Get six other compelling reasons why regular 401(k) audits make sense: 1) Ensuring compliance with DOL regulations, 2) Upholding Fiduciary Responsibility, 3) Maintaining Financial Integrity, 4) Protecting Participants, 5) Building Employee Trust, and 6) Preparing for Future Growth.
Retirement savings plans are valuable benefits that help attract and retain top talent, providing employees with crucial nest eggs for the future. However, managing these plans involves significant responsibilities. That’s why compliance is critical, and why a proactive 401(k) audit is the best way to assure compliance.
1. Compliance Assurance with DOL Regulations
Arrange for a 401(k) audit to help everyone sleep better at night. Here’s why: A proactive 401(k) audit should:
- Ensure your plan complies with the Employee Retirement Income Security Act (ERISA) and other relevant regulations.
- Minimize the risk of penalties and legal issues by ensuring adherence to all applicable rules.
- Prevent potential DOL audits by identifying and addressing compliance issues before they attract regulatory attention.
- Signal a well-managed company to stakeholders, including employees, investors, customers, and the community, while at the same time offering self-assurance that all is well even if the DOL comes knocking.
2. Fiduciary Responsibility
Pre-emptive 401(k) audits make public statements that you are proceeding at the highest level of your fiduciary responsibility. The 401(k) audit shows that the plan sponsors are:
- Acting in the Best Interest of Participants. Having the audit shows good faith.
- Demonstrating Commitment to Fulfilling Fiduciary Duties. Going the extra mile by spending time and resources to have an audit done.
- Protecting Fiduciaries Against DOL Scrutiny by ensuring all responsibilities are met and reducing the risk of adverse findings in a DOL audit.
3. Financial Integrity
In well-run companies, there is little left to chance. Scheduling and preparing staff for a 401(k) proactive audit sets the tone for how everything is done in every part of the company. An audit communicates financial integrity across the board by:
- Providing In-depth Examination of the Plan’s Financial Statements. Transparency at every level of the company builds confidence for the employees and owners—and for the consumers of your company’s goods and services.
- Emphasizing and Ensuring Accuracy and Completeness to assure stakeholders of the plan’s financial integrity.
- Avoiding DOL Penalties by discovering financial inaccuracies ahead of a DOL audit. Errors can result in DOL penalties that cost money and undermine trust—both avoidable.
4. Plan Participant Protection
What does participant protection mean? This means the participants can trust that their contributions are treated correctly and in line with the plan documents. Your employees work forty hours weekly for twelve months a year and hopefully for decades of loyal service. They want to retire, and they hope they will have enough to live on. What if their savings were mismanaged for all those years? Regular preemptive audits prevent an unfortunate surprise at retirement for your employees by:
- Verifying the Plan is Administered Correctly and that participants’ contributions are handled appropriately.
- Protecting Participant Interests by meeting the plan’s obligations to participants and safeguarding their retirement funds.
- Complying with DOL Standards to ensure that participants’ contributions are safe while avoiding compliance issues during a DOL audit.
5. Employee Trust and Confidence
Employee benefits create happy employees, resulting in an excellent work ethic, loyalty, longevity, and creativity. Great benefits attract job seekers and ensure investors and customers feel good about your company. Benefits are a part of the entire work environment that makes your company successful.
A well-audited 401(k) helps by
- Reinforcing Trust: It reassures employees that their retirement savings are appropriately managed and that everything else they work hard to create is as carefully structured from products to services to safety.
- Improving Employee Retention and enhancing employee satisfaction and retention.
- Demonstrating Proactive Management, indicating to employees that their company’s management uses regular 401(k) audits to ensure they comply with DOL standards.
6. Preparing for Future Growth
The commitment to quality, as evidenced by having 401(k) retirement plan audits, spreads to all parts of the company. That means the preemptive 401(k) audit is elevated to the level of setting the tone and creating a culture that:
- Supports Future Expansion because a solid audit trail in the plan’s financial documents indicates attention to detail in all the company’s financials. It will encourage investors and provide a foundation for future growth, mergers or acquisitions, expansions, and the loans to do it all.
- Establishes strong audit practices not prompted by anomalies and DOL intervention but by a need to have everything wholly defensible and done well.
- Prepares the Company for a Possible DOL Audit and reduces the likelihood of surprises or costly penalties, which hinders forward momentum and growth of a company.
Conclusion
Retirement plans show your employees you care about them and their future. Your clients and customers will respect you for making the investment to offer a plan. It takes time and work. However, the benefits are employee good faith and loyalty.
Your job is to maintain the plan and make sure it complies with DOL regulations, that you know your fiduciary responsibility, that the plan is managed with financial integrity, that your participants are protected, and that you have placed your company in an excellent position to grow by being a good corporate citizen that investors and lenders will support as you expand and flourish.
The retirement plan is a block in the company’s foundation. The sturdier the foundation, the higher your building can be. A proactive audit is like the mortar between the building blocks. It makes everything stronger. An annual 401(k) audit indicates a well-managed company, especially if the audit is not required.
For more information – contact LSL today!
