Considering the current state of our economy right now, many people are concerned about having a retirement plan. If you are an employer interested in learning more about creating a retirement plan for your employees, then setting up a 401(k) retirement plan for your employees is a great way to create a more pleasant work environment. It will give them peace of mind knowing that the money they are making will be invested for their future.
What a 401(k) is is a kind of retirement savings account. Named after the 401(k) section of the Internal Revenue Code defined in federal statutory tax law, it is a pension account where the employer allows its employees to shelve a portion of their salary preceding taxes. The money saved in this account will not be taxed until it is withdrawn from the account. Some employers may choose to match their employees contributions. This may be beneficial to you if it’s important to set up a more positive work environment.
You can choose to create opportunities for your employees to make other investments with the 401(k) plan. Options to give them include stocks, bonds, insurance, mutual funds, etc. If you have enough employees sign up for a 401(k) plan, then eventually your activity will be required to be audited by independent accounting firms, as this abides by government regulations. It takes more than 100 participants in order to reach this limit. The 401(k) audit is carried out by a CPA firm, and what they do is that they take a look in your plans to see if it is fair in representing the stability of your employees’ accounts. They look at important material features to make sure the accounts are financially stable.
A 401(k) auditor (a CPA auditor, otherwise known as a Certified Public Accountant) will want to know if your retirement plans are abiding government regulations and that you are staying true to your plans’ contracts in detail. Some of the angles that they use to analyze your plan are as follows:
– Are there consistent and regular contributions being made toward the plan?
– Are all of your eligible employees able to participate with equal opportunity?
– Are the payments being made comply with the terms of the plan?
– Are there any likely and potential tax issues?
– Are the values of the plan fair and representative of your employees?
The auditor will try to answer questions like these, and this will ensure that your plan is safe, secure and trustworthy. The auditor will then contact your plan administrator or anyone that is responsible for managing your employee retirement plans. The summary that the auditor provides for is beneficial for the success of your financial plans, and will eventually help keep happy employees who can extend that trust to your company for their retirement hopes.
Even if you don’t reach the minimum size for a mandatory 401(k) audit, you can still hire an accounting firm to look through your plans – this is beneficial for you, as you can improve your own understanding about the pension program. The accounting firm can also help you with making decisions about your retirement plans, as they can be an asset to help decide when you need to have a 401(k). In a sense, hiring a firm can prove to be very efficient in terms of getting work done.
If you decide to opt for an independent 401(k) audit, there are certain areas that you will need to cover to make sure that you have all the necessary documents, and it will take way more time on your end to put together. You will need the plan contract, IRS records, amendments to the plan, current and historical summaries of the plan, summaries of modifications and many other documents. It may be possible that you may not know what these documents are, or where they are kept. However, the effort put into getting these documents together is worth the payback when the regulations are being kept up to par, and a CPA firm can help you achieve that, especially if you decide to keep working with CPA firms.
When you file your tax returns with the IRS, you will be filling out a form named Form 5500. If your filed plan is large, then yes, you will need to do a 401(k) audit. As stated before, you need to have more than 100 eligible employees signed up for the 401(k) plan. If indeed your number of participants runs larger than that, then you can make steps to find an accounting firm that can do the job for you, and make your yearly company check ups run more smoothly.