Frequently Asked Questions
What is a 401(k) audit?
A 401(k) audit is an independent examination of a plan’s financial statements and operations, along with the plan sponsor’s internal processes, performed by a qualified auditor. It is required to help ensure the plan’s financial information is accurate and that the plan is being administered in accordance with applicable DOL and IRS regulations. The audit also supports the information reported in the plan’s Form 5500 filing.
During the audit, we will review plan records, test selected transactions, and evaluate supporting documentation to assess whether the financial statements are fairly presented. As part of this process, we perform procedures across key areas of the plan to evaluate proper administration and support the transactions and balances reported in the financial statements..
At the conclusion of the audit, we will issue an opinion on the plan’s financial statements, which is included with the Form 5500 filing.
When is a 401(k) audit required?
A 401(k) audit is required when a plan is classified as a “large plan” for Form 5500 reporting purposes. This classification is generally based on the number of participants with account balances at the beginning of the plan year.
For plan years beginning on or after January 1, 2023, a plan is considered a large plan if it has more than 100 participants with account balances at the beginning of the year. For a plan’s first year, the determination is made at the end of the plan year.
An exception known as the 80–120 participant rule allows certain plans with between 80 and 120 participants at the beginning of the year to continue filing in the same category (small or large) as the prior year, provided a Form 5500 was filed for that prior year. This can affect whether an audit is required for that year.
In the case of short plan years (seven months or less), the plan may defer obtaining the audit and include the accountant’s report with the Form 5500 filing for the following plan year.
When is the deadline?
The audit must be completed in time for the plan’s Form 5500 filing deadline, which is generally the last day of the seventh month after the plan year-end (typically July 31 for calendar-year plans). The filing deadline can be automatically extended by up to 2.5 months, making the extended due date typically October 15. The audit should be completed with sufficient time to incorporate the audit report into the Form 5500 and submit the filing by the applicable deadline.
Meeting these deadlines is important to avoid potential penalties and filing issues.
What steps should I take to prepare for my first 401(k) audit?
Preparation begins with organizing key documents, including plan documents and amendments, payroll records, participant census data, contribution remittance details, and supporting plan reports. Ensuring this information is complete, accurate, and readily accessible helps prevent delays once the audit begins.
It is also important to designate a primary point of contact who is familiar with the plan’s operations and can coordinate responses to auditor requests. This individual should have access to the necessary records and be able to communicate with payroll providers, recordkeepers, or other third parties as needed.
401(k) Audit Solutions provides a clear, structured request list and guidance throughout the process to help ensure you are fully prepared and the audit runs efficiently.
How involved will our team need to be during the audit?
Your team will be involved throughout the audit, but the level of effort is manageable and primarily focused on providing information and answering questions. Most of the work involves gathering and sharing requested documents such as payroll records, participant data, plan reports, and supporting schedules. As the audit progresses, your team may also assist with clarifying processes and responding to follow-up requests. With organized records and a designated point of contact, the process is designed to be efficient and minimally disruptive.
What happens if a required audit is not performed?
If a required audit is not completed, the plan is considered out of compliance with Department of Labor and IRS requirements. This can lead to filing issues with Form 5500, potential penalties, and delays in annual reporting. In some cases, regulatory agencies may assess fines until the audit is completed and properly submitted.
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