When Do You Need a 401K Plan Audit?

auditplanAudited financial statements are required for your 401K Plan when your plan is considered a large plan.  The definition of a large plan is a plan that has 100 or more eligible participants at the beginning of the plan year.  Participants are defined as; active participants in the plan, eligible employees that have not yet participated in the plan, separated or retired participants and beneficiaries.  Large plans must have their 401K Plan audited by a CPA Firm and file Schedule H with their Form 5500.

There are a couple of exceptions to the audit requirement:

  1. 80/120 Rule provides that as long as the number of participants as of the first day of the plan year is between 80 – 120, you can file Form 5500 in the same category (“large plan” or “small plan”) as indicated on the prior year Form 5500 filing and avoid the financial statement audit requirement.
  2. If the plan is a short-year plan and the plan year is 7 months or less, the plan may defer the audit requirement to the following plan year.

Keep in mind that if you had over 100 eligible participants at January 1, 2016 and you don’t meet one of the exceptions above you will be required to have a financial statement audit of your 401K Plan for the year-ended December 31, 2016 which is due July 31, 2017 unless you file for 2 ½  month extension.  Penalties for filing a late 401K Plan audit can be very costly.  If you think you might need a 401K Plan audit, based on the above criteria, you should seek a qualified CPA Firm with experience in 401K Plan audits.

The questions you need to ask to find a qualified CPA Firm to audit your 401K Plan:

  1. Does your firm belong to the AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC)?
  2. What is the level of experience with 401K Plans and how many do you audit?
  3. Does your firm have experience working with third party administrators?

Rules and regulations for 401K Plans by the IRS, DOL, ERISA and SSA are constantly changing.  At GKG CPAs we have extensive training and experience auditing 401K Plans, Pension Plans, 403(b) Plans, ESOPs, and Health & Welfare Plans.  If you know you need a 401K audit or are not sure now is the time to call us, we will be happy to help and guide you through the process.