It turns out, there’s quite a lot to learn about it, as this kind of knowledge is helpful to have to help either ease your concerns or help you find a good company to work for. The 401(k) plan is a pension program given to employees that are set up by employers. Think of it as a retirement savings program, that takes the money right out of your paycheck before it gets taxed and placed into a retirement investment account. It’s almost like a direct deposit towards your future. It’s not a necessary process, but usually employers offer these programs to employees in order to build better company esteem and a calmer, more trusting work environment.
Even if your employer offers it, you do not have to take it. It should be obligatory that every employee has a fair chance at choosing to use their 401(k) benefits, and what a 401(k) auditor does is to ensure that fair chance.
Here’s a fact: the 401(k) was named after a specific section in the Internal Revenue Code of our American federal statutory tax law. This section was called 401(k), which enables that employees are able to invest their money in a retirement without having to be taxed. This money will not be taxed until it is withdrawn from the account. So essentially, you can be building up your retirement plan and not have to worry about having it taxed until you are ready for it.
So what is an auditor, what is a 401(k) audit and what does the auditor look for? First off, an auditor is usually a Certified Public Accountant. A good employer will hire a respectable accounting firm, who will provide certified accountants in order to look through their audits. An excellent CPA will communicate with your employer about what’s going on with the 401(k) plans.
The 401(k) audit itself is a practice that complies with SEC and federal regulations. It’s a means to ensure that the 401(k) plans provided by employers are applied legally, securely and safely. The accounting firm hired for the job is normally an independent third-party firm that overlooks the company’s activities. It usually has certain qualifications that it looks for in a company when it comes to the way the company is running the 401(k) plans. Some of the questions they ask themselves as they audit a company’s plan are:
– Do employees all have equal chance at the 401(k) plan?
– Are there any transactions being made that are potentially or strictly prohibited in accordance with ERISA (the Employee Retirement Income Security Act)?
– Are the payments towards the 401(k) consistent and regular? Are they as well secure?
– Do these plans have enough value and are they potentially going to provide for the employee making the investment?
– What are the possible tax issues that may arise out the current plan?
– Is the executive plan following its own agreements made in the contract?
The documents that an employer needs to turn in to start the audit process usually cover basis such as the contract itself, documents related to the Internal Revenue Service (or popularly known as the IRS), copies of previous 401(k) plans for comparison purposes and many more. Usually, a bookkeeper is hired to keep record of all of these company files. This is an important step, especially for an employee to know, since all of these files, including the audit records of the 401(k) plans, are kept with the company filings with the IRS. Essentially, this activity is recorded, and this should help ensure that the money you are taking out of your paycheck for investments are being secured and properly maintained and operable. The CPA firm ensures this.
Here’s the catch: if your employer’s company does not exceed 100 participants in their 401(k) plan, then there’s no requirement based on those mentioned government regulations to have a 401(k) audit. Thankfully, there’s always the choice to voluntarily hire an accounting firm to go through the process of a 401(k) audit, as this keeps the employees’ futures in mind.
There are also other investments that you can make with your 401(k) retirement plan. You can easily invest in stocks, bonds, individual brokerage accounts and mutual funds with your retirement money placed into the 401(k) program, and this money can be distributed between your different investments at any time, too. It’s all a means to help you plan out your far-reaching future with your work and time.