401k audit requirements for plan sponsors
As a plan sponsor, you should arrange an independent audit if the 401(k) plan files as a large plan under Form 5500 rules. For defined contribution plans, in general, you look at the number of participants holding account balances at the beginning of the plan year. A special rule applies to first-year plans — alongside an election for plans falling into the 80 to 120 participant range.
What are 401k audit requirements?
For large plans, 401k audit requirements dictate that the plan administrator should attach audited financial statements to the annual Form 5500. The Department of Labor (DOL) indicates that most employee benefit plans with 100 or more participants submit such audited statements. This work should be performed by an independent qualified public accountant.
When does a plan cross the 401k audit threshold?
The plan crosses the 401k audit threshold once it reaches large plan status in accordance with the Form 5500 instructions. For a defined contribution plan, this count is found on line 6g(1) — representing the number of participants with account balances at the beginning of the plan year. If this is the plan’s first return, the count from line 6g(2) must be used — which looks at the end of the plan year.
Because the 80 to 120 range functions as an election, you look at the prior year’s filing category to decide if an audit report belongs with the current filing.
Who counts toward the plan total?
The audit count is different from the payroll headcount. The Form 5500 instructions say you count participants with account balances, including former employees who still have money in the plan. ERISA recordkeeping rules and the Form 5500 filing system require plan sponsors and administrators to maintain participant and plan records that support benefits, reporting, and annual filings.
What is the 80 to 120 participant rule?
This rule lets some plans stay in the same filing category used for the prior year. If the participant count is between 80 and 120, and a Form 5500 was filed for the prior plan year, the plan may elect to remain in the same filing category used for the prior year. The same logic applies if you filed as a large plan last year.
What do Form 5500 401k audit requirements involve?
Form 5500 401k audit requirements focus on the annual return, the audited financial statements, and the accountant’s report. According to DOL instructions, filings are due by the last day of the 7th calendar month after the plan year ends. It is possible to get a one-time extension of up to 2½ months by filing Form 5558 on time. Schedule H asks if the attached opinion came from an independent qualified public accountant & if the engagement was an ERISA section 103(a)(3)(C) audit.
How should a plan sponsor prepare before fieldwork starts?
Work from the records backward to the filing in order to prepare it.
- Confirm the participant count using the correct Form 5500 rule for the year
- Employee deferrals, employer contributions, distributions, loans, and rollovers should be reconciled to the trustee or recordkeeper data
- Check that payroll deposits were remitted on time & that the plan document complies with actual operations
- Eligibility, census & compensation and vesting records should be organized in one place
- Engage an auditor with employee benefit plan experience & confirm their independence before fieldwork
The DOL auditor-selection guide indicates that the auditor must be licensed or certified by a state regulatory authority & independent. Recent DOL reviews point to contributions, benefit payments, participant data, and party-in-interest transactions as common problem areas, so those items should be reviewed early.
First-year and short-year plans deserve a closer look
The plans take into specific counting & filing rules consideration for 401k audit requirements. A defined contribution plan that checks the "first return or report" box uses the end-of-year participant count for the filing test. A short plan year is less than 12 months. The Form 5500 instructions also include a short-plan-year election for years of seven months or fewer, which may allow the accountant’s report to be deferred in limited cases.
Dimov Audit can support you with 401k audit
Dimov Audit presents assistance to plan sponsors who need a concrete roadmap from raw data to a completed filing package. If you require help in satisfying your 401k audit requirements, reach out to us today.
FAQs
What is the 80-120 rule for 401k audit?
The 80-120 rule for 401k audit is an election that lets a plan with 80 to 120 participants remain in the same filing category used for the prior year — rather than switching types immediately.
How many participants are needed for 401k audit?
The answer is 100 or more in parallel to the applicable Form 5500 counting rule. This is subject to the 80 to 120 election. For defined contribution plans, this count is generally based on participants with account balances.
How often do 401k plans get audited?
If the plan necessitates an audit, the requirement applies annually since it connects to the annual Form 5500 filing.
What is the 2 year rule for audit thresholds?
There is no standard DOL Form 5500 rule called the 2-year rule for audits. In practice, people generally mean the 80–120 participant rule or the first-return counting rule.
