Ian Fincher's Take on Why 401(k) Audits Matter More Than You Think

Ian Fincher

Ian Fincher works with a construction company in New Orleans. Fifteen employees. They've had a 401(k) plan for six years.

Nobody's ever had it audited.

Ian Fincher asks the obvious question: "Have you been making the required contributions?"

The owner isn't sure. He hands off payroll to someone. They deduct employee contributions. They match employer contributions, he thinks. It's probably fine, he figures.

Probably isn't good enough. And Ian Fincher explains why.

The 401(k) you set up five years ago that nobody's checking

A 401(k) plan is a formal benefit. The Internal Revenue Service sets rules. The Department of Labor sets rules. ERISA (Employee Retirement Income Security Act) sets rules.

If you offer a 401(k), you're responsible for compliance. That means calculating correct deductions. That means making contributions on time. That means distributing statements to employees. That means keeping records.

Many small business owners set up plans and basically forget about them. They figure as long as employees are saving for retirement, everything's fine.

But fine isn't compliant. And non-compliant plans face penalties.

Ian Fincher has seen plans where contributions were missed. Where employer matches were calculated incorrectly. Where employees were deducted but not contributed to the plan. During his time at Wegmann Dazet in New Orleans, he worked on employee benefit plan audits that uncovered these exact issues across Gulf South businesses.

These mistakes don't hide forever. An employee leaves and asks about their vested balance. That's when the plan gets audited.

Why the IRS cares about your employee retirement plan

The 401(k) is a tax-advantaged savings vehicle. Employees reduce taxable income. Employers get a deduction for matching contributions.

The IRS cares because retirement plans are valuable benefits. They're also easy to abuse. If rules aren't followed, the tax advantages disappear.

A plan that's not properly maintained can lose its tax-qualified status. Employees would owe taxes on contributions they thought were tax-free. The employer would owe penalties.

Ian Fincher explains this as a compliance issue, not a punishment. The government is saying: if you offer this benefit, follow the rules. If you don't follow the rules, the plan doesn't get tax-favored treatment.

A construction company in the Gulf South employs skilled workers who expect competitive benefits. A 401(k) is standard. But if that 401(k) isn't properly maintained, it's almost worse than not having one.

Employees depend on it. Errors get discovered. Disputes arise.

The audit that catches contribution mistakes and corrects them

A 401(k) audit is straightforward. The auditor reviews the plan documentation. Reviews payroll. Verifies that employee contributions were deducted correctly. Verifies that employer contributions were made correctly. Verifies that funds were invested per employee direction. Checks that distributions were made according to plan rules.

Most errors caught in audits are honest mistakes. Payroll person forgot to contribute one month. Employer match was calculated at 4 percent instead of the intended 5 percent. An employee should have been enrolled but wasn't.

These are fixable. The plan can make corrective contributions. Can correct the employee's account. Can get back into compliance.

Ian Fincher sees the audit as an opportunity. His background in accounting and economics from LSU and UNO taught him that finding problems early is always cheaper than fixing them later. Yes, an audit costs money. But it prevents bigger problems.

Better to find and fix errors while the plan is active than to have employees discover errors years later.

A plan audit isn't punishment, it's protection

Here's what Ian Fincher tells business owners who are nervous about having their 401(k) audited.

An audit isn't the IRS trying to catch you. It's verification that the plan is working correctly. That employees are getting what they were promised.

For a New Orleans business, this is critical. Skilled employees depend on retirement benefits. If your plan isn't secure, you lose trust. Worse, if the plan fails, employees suffer.

Ian Fincher recommends regular audits. Not every year, necessarily. But every few years. Just to verify that the plan is being administered correctly and that all contributions are being tracked properly.

A 401(k) audit typically costs a few thousand dollars. The cost of fixing a broken plan years later costs much more.

And the peace of mind? Ian Fincher would say it's priceless. You know your employees' retirement benefits are secure. You know the plan is compliant. You know you're handling a serious responsibility correctly.

That matters more than you might think.