Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Do I need an audit?

401(k) auditAs a sponsor of an employee benefit plan, along with annual reporting requirements, you may be required to undergo an audit of your plan’s financial statements. What are the reporting requirements and what triggers an audit? This varies depending on the type and size of the plan you sponsor.

One participant plans (a business owner with no employees) have the option of filing either Form 5500-EZ or Form 5500-SF. However, if plan assets are less than $250,000, no filing is required. One participant plans have no audit requirement.

Plans with fewer than 100 participants, but are not one participant plans, must file Form 5500-SF electronically. Plans of this size are considered small plans and also have no audit requirement.

Plans with 100 or more participants must file their Form 5500 electronically. Plans of this size are considered large plans and, generally speaking, will require audited financial statements to be submitted with the Form 5500. Of course, there is an exception to this rule called the 80-120 rule. The four basic variations of this rule are:

  • Plan filed as a small plan in the prior plan year with no more than 120 participants at the beginning of the current plan year – the plan may continue to file as a small plan and no audit is required
  • New plan with 100 or more participants at the beginning of the plan year – must file as a large plan and an audit is required
  • Plan filed as a large plan in the prior plan year – the plan must continue to file as a large plan and an audit is required until that time the number of participants falls below 100 at the beginning of the plan year
  • Plan filed as a large plan in the prior plan year with less than 100, but greater than 80 participants at the beginning of the current plan year – the plan has the choice of continuing to file as a large plan where an audit is required, or the plan may file as a small plan and avoid the audit requirement

As a reminder, when determining the number of participants, there are three types of individuals that must be included in the count:

  1. All employees who are eligible to participate (whether they have chosen to or not)
  2. Those who have retired or separated from employment, but who still have account balances
  3. Deceased individuals whose beneficiaries are either receiving benefits or are entitled to receive benefits

Crystal Becerril, CPA

Comments

  1. I like how you said, “Plans with 100 or more participants must file their Form 5500 electronically”. I think this would probably apply to my work. We have many more employees than 100. Also, I think our benefits are the best around. What are the most common benefits for most plans?

    • admin says:

      Johnson –

      Thank you for your question and interest in our blog. Typically the most common benefits allow for participant loans, hardship withdrawals and provide employer contributions, though there can be others.

      Kevin C. Bach, CPA, CVA