401k Plan Audit: Fiduciary Responsibility

May 11, 2022Audit & Assurance, Business, Employee Benefit Plans, Estate & Retirement Planning

Many business owners offer a 401k plan to their employees. It is a great way to help employees save for retirement, and it allows the owner to contribute to their account as well. It can also be an attractive benefit for hiring and retaining employees in the current market. However, as your business and retirement plan grow, you may become subject to a retirement plan audit. Generally, an independent auditor must audit a retirement plan’s financial statements once it has more than 100 eligible participants – or 120 if the plan has not been previously audited.

A 401k plan audit can be an unexpected part of offering this benefit to employees. Most companies are not prepared for a detailed examination of the plan’s compliance requirements, the company’s (and/or trustee’s) fiduciary responsibility, and internal controls. This blog series will look at four parts to successfully navigate the audit of your 401k plan: fiduciary responsibility, operational compliance, financial reporting, and document gathering and organization. We will discuss what to consider, what to expect, and how to prepare for a 401k plan audit. In this first installment, we discuss the plan’s fiduciary responsibilities, best practices, and the proper use of forfeitures.

Fiduciary Responsibilities

Fiduciaries are generally those individuals or entities who manage an employee benefit plan and its assets. Companies often hire outside professionals, sometimes called third-party service providers, or use an internal administrative committee or human resources department to manage some or all a plan’s day-to-day operations. Even if a company hires third-party service providers or uses internal administrative committees to manage the plan, it still has fiduciary responsibilities.

A plan must have at least one fiduciary, a person or an entity, named in the written plan or through a process described in the plan. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a board of directors. Additional examples of a plan’s fiduciaries include:

  • the trustee
  • the investment advisers
  • all individuals exercising discretion in the administration of the plan
  • those who select committee officials

Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. Determining whether an individual is a fiduciary depends on whether they are exercising discretion or control over the plan.

Not all decisions regarding a retirement plan are fiduciary actions – some are business decisions. For example, it is a business decision when an employer decides to establish a plan, create a benefits package, include certain features in a plan, or amend or terminate a plan. However, when an employer or someone hired by the employer takes steps to implement these decisions, that person is a fiduciary.

Fiduciary Best Practices

The following are best practices that will help ensure the fiduciaries are acting in the best interest of plan participants:

Form an Oversight Committee

This group should meet regularly to review plan features, monitor service providers, discuss investment options, review plan expenses, and review processes related to the plan. This group should also meeting with the plan’s third party administrator and/or investment advisor at least annually to review the above-mentioned items. Minutes should be maintained for all meetings

Develop an Investment Policy

An investment policy is a road map documenting which types of investments will be offered as options in a plan. It provides the plan’s general investment goals and describes the strategies the investment advisor or manager should employ to meet these objectives. The policy will also help the oversight committee determine if changes are needed to the mix of investments offered by the plan.

Hold Regular Meetings with Participants

The oversight committee should meet periodically with plan participants to ensure they have the most current information regarding the plan. These meetings may also include investment advisors or other plan service providers.

Ensure the Plan has Adequate Fidelity Bond Coverage

The Department of Labor requires those who handle retirement plan funds generally must be covered by a fidelity bond. This is not the same as the plan sponsor’s crime or D&O policy. The fidelity bond covering the plan must specifically name the plan as a covered party, cannot have a deductible, and must cover at least 10 percent of plan assets (with a maximum of $500,000 of coverage). An authorized surety company must also issue the bond. A list of these approved companies can be found here.

Ensure the Proper Use of Forfeitures

As mentioned earlier, retirement plans can be used as an employee retention tool. Employers typically implement a vesting schedule for employer contributions to entice employees to stay longer. This means employees earn rights to the employer contributions over time, which gives the employee an incentive to remain with the company.

Forfeitures occur when an employee terminates service before being fully vested in the employer contribution portion of their account balances and are typically used to reduce future employer contributions or pay reasonable plan expenses.

Forfeitures can also be allocated among remaining participants as an additional contribution. The plan document should specify how forfeitures are to be used. Plan management should ensure forfeitures are utilized regularly (typically at least annually) and in accordance with the plan document.


A sound fiduciary policy and oversight of a plan is the cornerstone of excellent plan internal controls. If you have any questions about your company’s fiduciary duties or have an employee benefit plan that needs an audit, feel free to contact us at [email protected] and we will assist you.


Your content goes here. Edit or remove this text inline or in the module Content settings. You can also style every aspect of this content in the module Design settings and even apply custom CSS to this text in the module Advanced settings.

Trending Posts

Subscribe to our Blog

Related Industry Posts

The Process of Analyzing Overhead

The Process of Analyzing Overhead

Analyzing overhead is a critical process that businesses undertake to optimize cost efficiency and ensure effective resource allocation. Overhead costs consist of a wide range of non-direct expenses incurred during the production or operation of goods and services.

read more

Subscribe to our blog


We appreciate your interest in Smith Schafer and would love to hear from you. So please complete this form or feel free to email us directly at: [email protected]