Do You Still Need a 401k Audit?

Do You Still Need a 401k Audit?

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

It’s 5500 season again and now the big question is upon you: Do you need to have an audit performed and an audit opinion attached to your 5500 before you send it in? Most people know that the general rule is that if you have fewer than 100 participants in the plan, you are considered a small employee benefit plan and do not have to file an audit opinion when submitting a 5500. It can get tricky however. For example, what if you surpassed 100 participants during the year but at year end you have fewer? What if you have always been a small plan and this year you have just hit 100 participants but expect to be fewer again next year? Do they require you to keep switching between having an audit performed and not having one performed every year?

First, the number of participants that is used to determine if you require an audit is the number of eligible participants at the beginning of the plan year. So if you have fewer than 100 eligible participants at the beginning of the plan year, you qualify to file as a small plan and you qualify for the audit waiver. An additional rule known as the “80 to 120 Participant Rule” allows for plans who had between 80 and 120 eligible participants at the beginning of the year and who filed as a small plan in the prior year will also qualify for the audit waiver by electing to file as a small plan in the current year.

Second, as noted in the previous paragraph, the plan size determination is based on the number of eligible participants.  This is not the same as the number of employees who are participating by making contributions.  This difference can mean that what some might consider to be small plans because there are only a few employees making contributions will be required to file as large plans by the DOL and required to have an audit.  With this in mind, plans for companies with high turnover are well advised to consider longer periods of time prior to employees becoming eligible to participate.  Additionally, eligible participants include employees who have terminated in prior years, but who have not rolled over or otherwise withdrawn their accounts.  With this in mind, plan administrators are well advised to make full use of allowed provisions to require distributions to terminated employees with account balances less than certain thresholds (DOL allows for these automatic distributions for account balances less than $1,000).

In addition to the number of participants to determine if you are a small pension plan, other conditions are required to obtain an audit waiver. According to the DOL website ( these conditions are as follows:

  1. As of the last day of the preceding plan year at least 95% of a small plan’s assets must be “qualifying plan assets” or, if less than 95% are qualifying plan assets, then any person who handles assets of a plan that do not constitute “qualifying plan assets” must be bonded in an amount that is at least equal to the value of the “non-qualifying plan assets” he or she handles.
  2. The plan must include certain information in the Summary Annual Report (see for information needed) furnished to participants and beneficiaries in addition to the information ordinarily required.
  3. In response to a request from any participant or beneficiary, the plan administrator must furnish without charge copies of statements the plan receives from the regulated financial institutions holding or issuing the plan’s “qualifying plan assets” and evidence of any required fidelity bond.

If you still have additional questions relating to whether or not an audit is required for your employee benefit plan, please feel free to get in touch with our firm. We can help walk you through the process to determine what is required by the DOL. 

Shelby Williams