How construction companies can expand bonding capacity

An increasingly healthier economy means that revenues, profits, and, consequently, workforces are growing in many construction companies. As your workforce continues to grow, you may face an audit requirement for your 401k plan(s). To ensure your first 401k audit runs smoothly, consider how your company can best prepare for the audit and ensure your plan is in compliance with Department of Labor (DOL) and Employee Retirement Income Security Act of 1974 (ERISA) standards.

Once your company has determined a plan audit is required, engage an auditor with significant experience performing employee benefit plan audits. This is critical, as a recent DOL study found that the number of benefit plan audit deficiencies is growing due, in part, to companies not having a full understanding of the unique risks associated with these types of audits. Certain deficiencies can have a substantial cost impact to the plan sponsor.

After you’ve engaged an audit firm, begin the planning phase of the audit. Benefit plan audits are unique because of ERISA requirements and increased DOL regulation, but they also include financial statement and compliance aspects. Your auditor should meet with the plan’s fiduciary (or fiduciaries) to discuss the audit approach and gather the appropriate information. Your auditor will also want to collect any and all plan documents as soon as possible.

Once your auditor has obtained and reviewed the appropriate plan documents, they will collect information required to perform testing by obtaining an annual audit package from the third-party administrator, custodian, or recordkeeper. This package is typically available within three months after year-end and includes all plan-level financial information as well as participant activity, balances, distribution registers, and outstanding loan detail.

During fieldwork, your auditor will perform a detailed review of various participant data areas. Each of these unique areas can expose the plan to compliance risk. Participant eligibility and deferrals and contribution remittance testing are two of the most common areas in which plan deficiencies are noted.

Determining proper participant eligibility and deferral contributions is the most time-consuming part of the testing process. The DOL has identified the highest rate of plan deficiencies in this area. However, many issues can be avoided if the plan administration implements certain self-audit procedures.

Deficiencies associated with participant deferrals can be costly, especially if they have occurred over a number of years. Not only will your company be required to contribute 50 percent of the missed employee deferral, but it will also need to contribute 100 percent of the employer matching contributions and any lost earnings. These unexpected costs can significantly impact your company.

The second transaction cycle with which your auditor will be concerned is the timely remittance of employee contributions into the plan. The DOL has increased its focus on this area and currently requires withheld participant contributions to be remitted to the plan as soon as administratively possible and on a consistent basis. Again, many issues can be avoided if the plan administration implements certain self-audit procedures.

Preparing for your company’s first 401k audit can be a daunting task. However, numerous pre-audit assessments and self-audit procedures can help the process run as smoothly as possible for you, your team, and your auditor. Selecting an advisor with the appropriate experience is also important. Under typical circumstances, the benefits of using these guidelines as a preparation tool will far outweigh the cost of being unprepared and noncompliant.

For more information, contact Mark P. Ryan, Manager, Audit & Accounting and member of Kreischer Miller's Construction Industry Group at Email or 215.441.4600.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.