When Should Your Business Think about a 401(k) Audit?

401(k) audit

2 min read

401(k) plans are an essential part of a company’s compensation program, helping you hire and retain top employees. They are also inexpensive to offer and give your employees more control over their investments.

The administration of these retirement plans, however, can be complex. As your business grows and you have more employees contribute to your 401(k) program, there may come a time when you need to have an external 401(k) audit.

Let’s Talk about When You Might Need a 401(k) Audit

No one comes to us asking for a 401(k) audit just because. The reason companies may need one as they grow comes down to compliance and not wanting penalties from the IRS.

Once you have 120 eligible participants for your organization’s 401(k) plan, an audit is required. This doesn’t mean that all 120 employees have to participate in your retirement plan; they simply have to be eligible to contribute.

Once an audit has occurred, your plan must be audited every year going forward until the eligible employee number drops below 100. These are considered large plans. Retirement plans with fewer than 100 eligible employees, on the other hand, are considered small plans. Small plans do not require an audit.

There’s also the “80-120” rule to understand and consider, which states that if you happen to have over 100 participants but filed as a “small plan” in the previous year, you can again file as a small plan as long as you have under 120 eligible participants.

As far as timing goes, the Form 5500 filing deadline is seven months after the end of the month the plan year ends. Plans ending December 31st, for example, would have a filing deadline of July 31st of the following year.

It’s important for plan sponsors to understand the compliance rules that trigger an audit before it is time to file. Once the audit has been performed, audited financial statements of the plan, the audit report, and Form 5500 are filed together, to assure compliance with the necessary regulations.

Growing Companies Need to Think about Retirement Plan Audits before They Need One

When it comes to retirement plan audits, planning is critical. If you are close to reaching that 120 number, you need to be planning for an audit, which can be a time-consuming and expensive process. Don’t wait until the last minute to plan.

Let the MGA Experts Handle Your 401(k) Audit

We understand that determining 401(k) audit requirements can be complicated. If you’re unsure whether you need an audit of your retirement plan or not, please reach out to us. Our assurance team can be a valuable partner in your planning process.

We are here to make the complex simple.

Let's talk!

February 13, 2020