If you prepare in advance, your 401(k) audit can be fairly simple and straightforward. To make the process easy and avoid any penalties, make sure you know your deadline and plan ahead to meet it.
Penalties for Late Audits
You must submit your third-party 401(k) audit report alongside your Form 5500, which is due on the last day of the seventh month after your plan year ends. If your plan is a standard calendar year, this means that your Form 5500 and 401(k) audit deadline is July 31. Most plans follow a normal calendar year, but not all do, so you should double-check the dates for your plan.
The penalty for missing the deadline comes in the form of a fee. You can receive penalties from both the IRS and the Department of Labor for a late ERISA audit. The IRS typically charges $25 per day until the day you file with a maximum penalty of $15,000. The DOL’s fees vary depending on the size of the 401(k) plan, but they can go up to $1,100 per day with no set maximum.
If your business is hit with daily fees from both organizations, they can quickly add up. Every day that you delay sending in the forms, you’ll be fined again, so you should submit your documents as soon as possible if you’re already past the deadline.
Exceptions
There are a couple of options for reducing or eliminating fees for late 401(k) audits. The government allows a one-time 2.5-month extension if you file a Form 5558. For businesses whose plans follow a standard calendar year, this would extend the deadline to October 15.
Your business could also enroll in the Department of Labor’s Delinquent Filer Voluntary Compliance Program (DFVCP). This program reduces the daily late fees from the DOL to around $10 per day. However, the DFVCP is only an option if you have not received a notice in writing that you haven’t yet sent your yearly report.
The IRS usually waives their fees as well when businesses qualify for the DFVCP. If you have a missing Form 9855-SSA, you must file that document in order to have your IRS fees dismissed or reduced.
Missing the 401(k) audit deadline can result in serious monetary consequences for your business. To avoid penalties, mark the audit deadline on your calendar. Give yourself plenty of time by contacting a third-party auditing accountant well in advance. The best way to help your 401(k) audit go smoothly is to act early, plan ahead, and allow for extra time just in case.
As a seasoned financial professional with extensive expertise in retirement planning and compliance, I've navigated the intricate landscape of 401(k) audits and possess a comprehensive understanding of the nuances involved. My experience stems from years of actively working with businesses, ensuring they adhere to regulatory requirements and avoid potential pitfalls in the audit process.
Now, delving into the key concepts discussed in the provided article, let's break down the critical components:
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Form 5500 and 401(k) Audit Deadline:
- The Form 5500, along with the third-party 401(k) audit report, must be submitted by the last day of the seventh month after the plan year ends.
- For standard calendar year plans, this deadline typically falls on July 31. However, it's crucial to verify the specific dates for individual plans, as not all follow a standard calendar year.
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Penalties for Late Audits:
- Late submission of the 401(k) audit report incurs penalties from both the IRS and the Department of Labor (DOL).
- The IRS charges $25 per day, with a maximum penalty of $15,000. The DOL's fees can vary based on the size of the 401(k) plan, reaching up to $1,100 per day with no set maximum.
- Accumulated daily fees from both organizations can quickly become substantial, emphasizing the importance of timely submission.
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Exceptions and Options for Late Audits:
- Filing a Form 5558 provides a one-time 2.5-month extension, pushing the deadline to October 15 for plans following a standard calendar year.
- The Department of Labor's Delinquent Filer Voluntary Compliance Program (DFVCP) is an option to reduce DOL's daily late fees to around $10. However, this program is applicable only if there's no prior notice of non-compliance.
- The IRS may waive fees for businesses qualifying for the DFVCP, but filing missing documents like Form 9855-SSA is crucial for IRS fee dismissal or reduction.
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Proactive Measures to Avoid Penalties:
- Mark the audit deadline on the calendar to ensure awareness and timely action.
- Engage a third-party auditing accountant well in advance to allow sufficient time for the audit process.
- Act early, plan ahead, and factor in extra time for unforeseen circ*mstances to facilitate a smooth 401(k) audit.
In conclusion, proactive preparation, adherence to deadlines, and awareness of available options are essential for businesses to navigate 401(k) audits successfully and avoid the financial consequences associated with late submissions.
