Large Plan Audit 401k Rules You Need to Know

Navigating the complex world of large plan audits can be overwhelming, but understanding the rules is essential to ensure compliance and avoid costly penalties.

The IRS requires large plan audits to be completed within a specific timeframe, typically 6 months to a year after the plan year-end.

As a plan sponsor, it's crucial to maintain accurate records and documentation, including financial statements and participant data, to facilitate a smooth audit process.

The IRS also requires large plans to have an independent audit committee, which oversees the plan's financial operations and ensures compliance with regulations.

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A large plan is a 401(k) plan that has a certain number of participants. Specifically, it's considered large if it had 100 participants or more at the beginning of the plan year.

The 80-120 rule applies, which means that if a plan had between 80 and 120 participants at the beginning of the plan year, it's also considered large.

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A 401(k) audit can be a daunting task, but understanding the requirements can make it more manageable. An employee pension audit serves two primary purposes.

To prepare for a 401(k) audit, you'll need to gather various documents, including copies of the plan documents, such as the Plan's adoption agreement and basic plan document. A copy of the Plan's Form 5500 is also required.

Here's a list of the specific documents you'll need to provide:

The number of eligible participants used to determine if a plan is considered "large" has changed, and now only those who have accounts in the plan are counted.

The 80-120 Rule is an exception for growing businesses that allows them to continue filing the shortened version of a form if they have between 80 and 120 participants and were considered a small plan in the previous year.

If you file as a large plan after employing the 80-120 exception, you must continue to file as a large plan even if your participant count drops below 120, as long as you have at least 100 participants in your plan.

You can continue to file the shortened version of the form until you report at least 121 participants.

To help you navigate this rule, there's a free informational worksheet available for download that can help further illustrate the 80-120 exception.

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A 401(k) plan is considered a "large" plan if it had 100 participants at the beginning of the plan year. This is according to the DOL requirements.

The number of eligible participants is determined on the first day of the plan year, regardless of how many participants elected to join the plan or had accounts. This is a key factor in determining whether a plan is considered "large" or "small".

If a plan has between 80 and 120 participants as of the beginning of the plan year, it may elect to file the same category of form it filed the year before. This is known as the "80-120 rule".

A "large" plan must also file an audit conducted by an independent auditor with the Form 5500. This is a requirement to ensure compliance with ERISA and the IRC.

To be eligible for the audit waiver, a "small" plan must meet certain conditions. These include having more than 5% of the assets as nonqualifying plan assets, having a fidelity bond for those assets, and including required disclosures in the summary annual report.

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Here are the specific conditions for the audit waiver:

The participant count method is a crucial factor in determining whether a 401k plan requires an annual audit. Under the new DOL 401k audit requirements, the calculation has been modified.

All employees eligible to participate in the retirement plan were previously counted towards the audit threshold, regardless of whether they opted out, were terminated, or were no longer explicitly eligible. This has changed with the updated participant count method.

If a retirement benefit plan has at least 100 participants with active accounts, it's considered a "large plan", and an annual benefit plan audit is required.

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Working with BPM can be a game-changer for your 401(k) audit needs. We provide our clients with information about fiduciary requirements and best practices, assisting with appropriate referrals when needed.

BPM's employee benefit plan audit team consists of dedicated professionals with extensive knowledge of ERISA, DOL and IRS guidelines, along with years of experience. This expertise ensures that your audit is handled with care and precision.

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We communicate directly with your TPA, so you can focus on your core business. This saves you time and reduces stress.

Our staff is reassigned to the same clients each year, establishing continuity and ensuring that you have a familiar point of contact. This continuity is especially important when it comes to complex audit tasks.

BPM is proud to have been one of the first firms to join the AICPA’s Employee Benefit Plan Audit Quality Center, a public policy organization dedicated to fostering high-quality performance by public company auditors.

A large plan audit can be a daunting task, but knowing what to expect can make it more manageable. A large plan is considered as such if it has 100 participants at the beginning of the plan year.

To file a Form 5500, a large plan must also file an audit conducted by an independent auditor. This audit is a crucial part of the process and requires careful attention to detail.

The audit package from your third-party administrator is an essential document that should be included in the audit process. It provides valuable information about the plan's operations and helps the auditor identify any potential issues.

If a plan has between 80 and 120 participants, it may elect to file the same category of form it filed the year before. This is known as the "80-120 rule" and can be beneficial for plans that are experiencing fluctuations in participant numbers.

A plan with a short plan year of seven months or less may elect to defer the audit requirement. However, this does not eliminate the requirement entirely and should be carefully considered before making a decision.

To use the audit waiver, a "small" plan must meet certain conditions, including having more than 5% of its assets in nonqualifying plan assets. If this is the case, the plan administrator must ensure that any person handling these assets is covered by a fidelity bond.

The following table outlines the key differences between "large" and "small" plans:

A copy of the Plan's Form 5500 is also required as part of the audit process. This document provides important information about the plan's operations and should be carefully reviewed before submitting it to the auditor.

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A 401(k) plan is considered large if it had 100 participants or more at the beginning of the plan year, subject to the 80-120 rule.

These large plans are required to file an annual audit with the DOL and the IRS using Form 5500.

The audit must be performed by an independent qualified public accountant.

401(k) and 403(b) plans that are filed as “large” plans on Form 5500 must be audited by an external and independent accounting firm.

These audits ensure that you are operating your retirement plan in accordance with Department of Labor (DOL) and IRS requirements.

The audits guarantee that you're acting in your participants' best interests, which is crucial for plan owners with fiduciary duty.

The new DOL 401k audit requirements, effective for plan years beginning on or after January 1, 2023, will require an independent employee benefit plan audit attached to the Form 5500 filing for certain plans.

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This change will affect plans with over 120 participants, who will need to provide various documents to the auditor, including bank statements, payroll reports, and distribution information.

An external audit can provide that extra level of assurance that you are operating your retirement plan correctly, especially with changing rules and regulations from the Department of Labor and IRS.

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