California 401k and EBP audit requirements

401(k) and Employee Benefit Plan Audits for California Employers

Linked Accounting provides specialized 401(k) and Employee Benefit Plan (EBP) audit services tailored for California businesses. With deep expertise in local and federal regulations, we ensure compliance with the Department of Labor (DOL) and IRS standards, helping California employers protect their benefit plans and meet regulatory obligations.

• Compliance with DOL and IRS Standards: Our audits focus on aligning with DOL and IRS requirements, reducing the risk of penalties and ensuring participant protection.
• Plan Documentation and Internal Controls: We assess plan documentation and internal controls to enhance operational efficiency and compliance.
• California-Specific Tax Reporting: Support for state-specific requirements under California tax code, ensuring accurate benefit and withholding reporting for local compliance.
• Form 5500 Preparation: Comprehensive assistance with Form 5500 filing, meeting DOL mandates and minimizing potential errors.
  

Understanding California’s 401(k) and Employee Benefit Plan Audit Requirements

For California businesses meeting the 100-participant threshold, a 401(k) or pension plan audit is required under ERISA Section 103(a)(3)(C). The DOL and IRS enforce these audits to confirm that employee benefits are administered correctly and in compliance with ERISA Title I and Title II provisions. Failing to conduct a required audit can result in substantial penalties, including daily fines for late Form 5500 filings and potential legal actions.

Who Needs a 401(k) or Employee Benefit Plan Audit?

A business typically requires an audit if it meets any of the following criteria:

• 100 or more eligible participants at the start of the plan year, including active employees, terminated employees with account balances, and retirees.
• Subject to ERISA regulations, including privately held businesses, professional services firms, and corporations.
• Plan sponsors offering 401(k), 403(b), profit-sharing, pension, and other employee benefit plans.

Common Issues Found in 401(k) AuditsA comprehensive audit helps identify compliance errors, such as:

• Late remittance of employee contributions, which must be deposited as soon as administratively possible under DOL Reg. 2510.3-102.
• Inconsistent application of eligibility rules leading to improper plan participation.
• Misclassification of independent contractors versus employees, impacting contribution requirements.
• Incorrect application of IRS compensation limits under IRC Section 415.
• Failure to follow plan provisions for loans, distributions, and vesting schedules.

California-Specific ConsiderationsWhile federal law governs most benefit plans, California employers must also address:

• The California Secure Choice Retirement Program, requiring employers with five or more employees to enroll in a state-sponsored retirement plan if a private plan is not offered.
• Compliance with AB 5 regulations on worker classification, which affects plan eligibility and contribution rules.
• Employer responsibilities under the CalSavers Retirement Savings Program, including reporting and compliance obligations.

How Linked Accounting Supports California Employers

• Independent audits following Generally Accepted Auditing Standards (GAAS).
• Full regulatory compliance with DOL, IRS, and ERISA audit requirements.
• Preparation of audit-ready financial statements to streamline compliance and reduce regulatory scrutiny.
• Ongoing consulting to optimize fiduciary oversight and plan administration.

Stay Compliant & Protect Your Employee Benefit Plan

Maintaining compliance with ERISA and IRS regulations is critical to avoiding penalties and ensuring plan security. Linked Accounting’s California CPA team specializes in 401(k) and employee benefit plan audits, helping businesses navigate complex compliance requirements with confidence.