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Season 2, Episode 14: Understanding 401(k) Plan Audits with Mark Eitelgeorge

Meet The Expert S2 E14 Understanding 401k Audits

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Welcome to Season 2, Episode 14 of Meet the Expert® with Elliot Kallen!Elliot Kallen brings on Mark Eitelgeorge, Partner at Comyns Smith McCleary & Deaver LLP, to discuss the nuts and bolts of a well-run 401(k) plan.

As an auditor of ERISA 401(k) plans, Mark Eitelgeorge has seen plans with an effective system of oversight, policies, procedures, and system of communications, as well as the opposite — plans that are missing these key items, and that consequently expose the Plan Sponsor and Fiduciaries to potential litigation and corrective actions by the Department of Labor (DOL) and Internal Revenue Service (IRS).

If you are a CEO, CFO, or HR Director, or HR Manager, this episode is full of great insights and tips to keep you out of the DOL’s and IRS’ crosshairs.

Listen to the podcast here

Meet Our Guest

Mark E Eitelgeorge Comyns Smith McCleary & Deaver LLP Walnut Creek CA CPA

Mark Eitelgeorge

Partner, Comyns Smith McCleary & Deaver LLP

Mark leads Comyns Smith McCleary & Deaver LLP’s audit and attest practice and has worked in public accounting since 1984.

He has significant professional experience servicing a variety of closely-held clients, taught national accounting courses related to a variety of subjects, represented clients before the Internal Revenue Service and Department of Labor, and served as a guest speaker for various professional organizations.

Before joining the firm in 1996, Mark was a senior audit manager with an international accounting firm and a senior benefits consultant with a local retirement plan consulting firm.

Mark is also an Adjunct Accounting Professor at Golden Gate University.

What makes a great 401(k)?


A great team of service providers

A great team brings you the best of all worlds. Your 401(k) service providers include Investment Advisors, Accountants, HR Representatives, Custodians, and Auditors. These service providers must be in constant communication in order to run a great 401(k).


A well-designed investment menu

A well-designed investment menu should offer an adequate number of options that make sense for the participants, their financial picture, and their retirement goals.


Mutually beneficial plan design

The 401(k) plan should be designed to meet the needs of the company, its employees, and its owners.


A high 401(k) plan participation rate

Without high participation, the 401(k) plan is limited in the benefits it could potentially offer.

What is your role at your firm?

Mark Eitelgeorge (ME): When a business reaches a certain number of eligible participants for their 401(k) plan, federal law requires an independent audit of that defined retirement plan. The audit can shine a light on any parts of the plan that are not in compliance and allow you to take corrective action, thereby minimizing risk to your employees and your company. To ensure unbiased results, 401(k) audits are conducted by independent public accountants or third-party vendors.

In your opinion, what is the importance of a 3(21) and 3(38) Fiduciary Advisor to a 401(k) plan?

ME: This is something that has evolved over the last decade, before which most Investment Advisors were not Fiduciary Advisors. With the advent of the 404(c) regulations and other ERISA developments, this is becoming more common. It is in the Plan Sponsor’s best interest to pursue an Investment Advisor who is willing to take Fiduciary responsibility. Consider a Fiduciary Investment Advisor a form of insurance. If your Investment Advisor agrees to take a Fiduciary role, that protects the Plan Sponsor, Trustees, and Fiduciaries within that plan. Why not have an expert take that role and offset some of that responsibility?

What are some tips for staying compliant?

EK: One of the most important tasks 401(k) plan sponsors are faced with every year is compliance testing. Compliance testing refers to a series of IRS-required tests performed after year-end to ensure that a company’s 401(k) plan doesn’t unfairly favor owners and highly compensated employees. So, how does a Trustee or Administrator make sure their company’s 401(k) plan passes federal guidelines?ME: Every plan is different, but here are some general recommendations.

1. Keep your participants happy. 

Try to create a plan and environment where they don’t lodge formal complaints with the DOL — because that is the top reason behind the DOL making inquiries.

2. Use experienced service providers.

ERISA is a very complicated law, and many people are not familiar with all its components. You need a competent Investment Advisor, Custodian, Auditors, and CPAs to help run your 401(k) plan well.

3. Don’t chase the lowest fee when searching for service providers.

You get what you pay for. The DOL knows about firms that charge extremely low audit fees, as these fees are disclosed on the plan’s Form 5500. In the case of abnormally low fees, the DOL will audit the auditors by subpoenaing the audit documentation to verify the auditors are actually doing a thorough job. They are also doing similar types of things with other service providers (e.g., Fidelity had some issues with notices, fee disclosures, and so on). Instead, look for a fee that is fair and competitive.

4. Keep very good records.

Especially with committee meeting minutes and discussions with participants and service providers that you do document your judgments and your decisions, which can help in the long run.

5. Remit the 401(k) deposits timely.

The DOL requires employers to deposit contributions withheld “as of the earliest date on which such contributions … can reasonably be segregated from the employer’s general assets”, but “in no event later than the 15th business day” of the following month (29 CFR 2510.3-102). The DOL is particularly sensitive to this issue!

6. Understand the definition of your compensation in your Plan Document.

That’s another area of error in violations where bonuses and commissions and severance payments and medical allowances may or may not be subject to 401(k) withholding. Make sure the Plan Document specifies what compensation is to be included for any employer matching deferrals.

7. Hire a Third Party Administrator (TPA).

A TPA is a company that manages certain aspects of a business’ employee benefits package. Many companies outsource this function to save time and money.

8. Conduct quarterly meetings.

All 401(k) plans have 401(k) plan committees. Meetings offer opportunities to provide reports from an Investment Advisor Recordkeeper, Custodian/Trustee, CPA, and/or Legal Counsel, as well as opportunities to discuss new action items and review financial transactions and procedural prudence standards. These meetings should happen at least once a quarter about decisions that are made with respect to the plan.

Why is it important to meet regularly with your 401(k) Investment Advisor?

EK: The Trustee is responsible for the investments held by the Plan, and for acting solely in the best interest of the plan’s participants.

An effective Investment Advisor must meet with a Trustee on a regular basis, and set up a system for effective employee education, to help a Trustee avoid a DOL fine.

In regards to regular meetings and facilitating employee education to avoid a DOL fine, what can Trustees do?ME: Some firms are very good about having meetings, and others aren’t. We’ve represented many clients while their plans were examined by the IRS and DOL, and this is definitely one of those areas that they look at to determine whether the Plan Sponsor is meeting their various Fiduciary responsibilities.So, if we were to see this during an audit, we would definitely recommend the Plan Sponsor conduct meetings with their Investment Advisor — whether investment committee meetings or plan administration meetings — at least quarterly.A word of warning: The market is volatile. If you wait to do these meetings every 6 months or annually, you’re running the risk of having too little information to make effective decisions. Of course, it depends on the relationship and it depends on the plan, but Plan Sponsors should aim to be able to make all 401(k) plan decisions with the most updated and relevant information.And when it comes to meeting your Investment Advisor, are Zoom and live meetings are both acceptable.

What can the Administrator/Trustee expect from an audit?

EK: How complicated is the audit process? Is it simple or is it scary?ME: It depends. We try to make the audit as painless as possible by:

  • Maintaining very good communication with the Plan Sponsor and their representatives.
  • Setting forth a fairly easy-to-follow process where we give them a list of information that we’ll need.
  • Working within the confines of their schedule; these audits are usually not driven by strict deadlines.
  • Retrieving information directly from the Custodian, upon our clients’ consent.
  • At times, we may contact the Plan Sponsor to explain a payroll decision or to explain differences that we find and don’t understand.

In terms of timeline, audits can run from 2 to 4 weeks. If the 401(k) plan is complicated, it may take longer. Most audits are smooth when cooperation is timely and accurate and we communicate well. Any audits that don’t go smoothly can usually be attributed to poor communication.

Why use Comyns Smith McCleary & Deaver?

Here are some reasons why we’re a good choice in the industry:

  • Our boutique size is an advantage to our clients, and allows us to operate with flexibility and efficiency. We pride ourselves on being available and quick to act.
  • Our firm is comprised of nine partners working closely with experienced managers and other skilled professional staff members. We don’t hire junior staff; everyone in the company is very experienced and thorough.
  • The value we place on our people has been a primary reason for our continued growth over time. We communicate well within the company, and this allows us to address issues on a timely basis.
  • We have a proven record with the DOL and IRS.

Learn more:

» Visit Comyns Smith McCleary & Deaver LLP, located on 1777 Botelho Dr. in Walnut Creek, CA.

DISCLAIMER: Prosperity Financial Group and Meet the Expert® with Elliot Kallen do not make specific investment recommendations on Meet the Expert® with Elliot Kallen or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of the Meet the Expert® with Elliot Kallen guests, and not necessarily of Elliot Kallen or Prosperity Financial Group.

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