Employee Benefit Plans are common among most businesses. But just as common are the small mistakes employers can make that end up creating big problems. In this episode of “Unique Perspectives – The DGC Podcast,” our guest is Donny Butler, a Manager at DGC and a member of our firm’s Employee Benefit Plan Audit team. Donny discusses the pitfalls surrounding 401k plans, and the steps you can take to avoid them.
Here is a partial transcript of Donny’s interview with host Tom Annino.
Tom Annino: I thought we were going to spend most of our time in this interview discussing large companies. You quickly told me during prep work that is not the case.
Donny Butler: The operation of a 401k plan is really no different from a small company to a large company. It’s the same types of plan docs, similar operation and administration. A plan isn’t required to have an audit until they go over the 80-120 Rule. Once they reach 100 eligible participants, they’re technically a large plan filer. But there is an opt-out that you can file the same way you did last year until you reach 120. So 120 for most companies is the mark that would require them to get an audit. However, just because you don’t need an audit doesn’t mean that you’re not at the same level of risk as a large plan.
TA: For anyone who is affiliated with a smaller company who thinks this is something they do not have to worry about, there are situations that could come up for a smaller company where a 401k mistake could hurt.
DB: You don’t want any surprises in your business. These 401k plans, if they’re not administered properly, could lend some surprises if you were to go to sell through the due diligence process. If you were to get acquired, the buyer is going to look at all avenues of your business, including the 401k plan. If they go throughout that and find that there are some big errors, some compensation mistakes, some eligibility mistakes to correct, then they’re probably going to make you pay that cash expenditure before the deal goes through.
Donny says he often finds payroll code errors that go back several years, turning small mistakes into large mistakes. To listen to the entire interview, click here or use the Soundcloud player above.
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If you have questions about your business’ 401k plan, or are interested in a 401k risk assessment or audit, please contact a member of your DGC engagement team or Donny Butler, CPA at 781-937-5137 / firstname.lastname@example.org.