401(k) Audit Requirements

It's common for clients to have numerous questions about the 401(k) audit process. Below we've answered a few of the most common questions we hear.

Audit Basics

100+ participants

Employers with 100 or more employees who are eligible to participate at the beginning of a year are required to have their plan audited.

Independent Auditor

If required to be audited, the employer must find an independent, qualified auditor to perform the audit.

Deadline

The regulatory deadline to complete the audit is July 31st, which can be extended to October 15th.

Compliance

All aspects of the plan will be tested to be sure operations are in compliance with the plan documents and laws and regulations.

Form 5500

Once the audit is completed, it must be attached to the Form 5500 for filing with the Department of Labor.

Ready to sign up for a better 401(k) audit?

Drop us a line for a free phone consultation.

Request 401(k) Audit Consultation »

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Their stellar performance bolsters our credibility with clients and we look forward to continuing to recommend them as auditors!

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"Giving a bad referral to a client can damage a previously trusting relationship, so we tread carefully when providing recommendations. We’re so happy to refer PriceKubecka because, based on the glowing feedback, they deliver everything we say they will – a timely and quality audit at a fair cost. Their stellar performance bolsters our credibility with clients and we look forward to continuing to recommend them as auditors!”  - Bill Leitner, ISC Group

Frequently Asked Questions about a 401(k) Plan Audit

We have listed a few of the most frequently asked questions about a 401(k) Audit and the the requirements of an employee benefit  plan.

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What are the Department of Labor (DOL) and IRS audit requirements for a 401(k) plan?

 

A 401(k) plan's audit requirement is based on the number of employees categorized as eligible participants every year. The DOL terms an employee benefit plan as a "large plan" and requires it to be audited in any year that it has over 100 eligible participants as of the beginning of the year. (See below for a discussion of participant eligibility.) The audit must be attached to the Form 5500, which must be filed by July 31st, unless extended to October 15th.

 

As with many other government regulations, there are exceptions:

 

  • Exception 1 (Short Plan Years) - Partial plan years rejoice - even if it is classified as a large plan due to its size, if a 401(k) has a plan year lasting seven months or less (for example, if it started in August and is a calendar year plan), the audit can be deferred to the next plan year.  If participation drops significantly the next year and no audit is required, the short plan year will still have to be audited.

 

  • Exception 2 (The 80/120 Participant Rule) - If the eligible employee count is 121 or greater at the beginning of a year, the plan must be audited, no other options. However, if the count is anywhere between 80 and 120, that year's requirement follows the prior year's audit requirement. For example, in year 1 there were 90 eligible participants, so no audit was required. In year 2, eligible participants climbed to 115. While the plan was above the 100 eligible participants, because it was still less than 120, it could elect to file as a small plan again. In year 3, when eligible participants rose above 121, the plan will be required to have an audit.

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How do I tell how many eligible participants my plan has?

 

There are three types of eligible participants that need to be included in your number:

 

  1. Active employees: Start with understanding your plan documents. Your Adoption Agreement and Summary Plan Description detail whether there are any excluded types of participants. Examples of possible exclusions are union employees and leased employees. From there, the document describes the age and service requirements and the entry dates, which will allow you to calculate all eligible active employees.
  2. Former employees: As employees leave the company, they may or may not remove their account balances from the plan. Any employees no longer employed by the company who still have a balance in their account on the first day of the plan year still count as eligible participants.
  3. Deceased employees: Any deceased employees whose benefits have not been fully received by beneficiaries still count as eligible participants.

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What will my 401(k) auditors request?

 

There are several forms we will need to complete your 401(k) audit. These forms will come from your organization, record keepers, custodians of the investment, and your third-party administrator, to name a few. Through Autire, you will be able to invite the key players in your plan to digitally upload documents securely, so that you can focus on your business instead of endless back and forth to secure the necessary documents. Autire uses two-step authentication to ensure that you can upload documents related to your plan securely.

 

The following documents are necessary to complete a 401(k) audit:

Basic Plan

Summary Plan Description

Adoption Agreement

Basic Plan Document

IRS Opinion Letter

Agreements with service providers

Amendments made to the plan

Annual

Form 5500

Trust Statement

Employee Census

Compliance Testing

Participant Summary Report

Loan Summary

Distribution Summary

Fidelity bond (coverage for full year)

Committee Meeting Minutes

SOC 1 Type 2 Reports

Payroll

YTD Payroll Reports

Specific Pay Period reports

Proof of Contribution Deposits

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How long will the audit take?

 

The audit is expected to take a few weeks, depending on how quickly you provide us with the information required.

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Does the auditor need to be in my city?

 

No, with current technology an audit can be performed remotely regardless of which city or state your business resides. This also means that auditors no longer need to come to your office and disrupt your normal business practices. We perform audits nationwide. It’s a win-win for everyone.

Ready to sign up for a better 401(k) audit?

Drop us a line for a free phone consultation.

Request 401(k) Audit Consultation »

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