When Does a 401(k) Plan Need an Audit? (And Other Employee Benefit Plan Audit FAQs)

If your organization sponsors a 401(k) plan, you may be subject to an employee benefit plan audit.

Going through an audit of your company’s retirement plan can be daunting, especially if you’re going through the process for the first time. But how can you know what to expect if you’ve never had an audit before? How can you tell if your 401(k) plan needs an audit at all?

Here, we discuss the most common FAQs about the basics of employee benefit plan audits.

Why Are Some 401(k) Plans Required To Have an Audit?

Audit goals and requirements can be traced back to The Employee Retirement Income Security Act of 1974 (ERISA), which was designed to ensure that assets belonging to employees as part of retirement plans will remain available during retirement.

In other words, ERISA serves to protect assets in retirement plans—including some 401(k) plans—so that funds aren’t misused or placed at risk and so that employees will receive their benefits. This is accomplished via an audit of certain plans.

When Does a 401(k) Plan Need an Audit?

Generally, a 401(k) plan is required to have an audit conducted when your plan has 100 or more participants.

What is the Timeframe for a 401(k) Plan Audit?

The timeframe for a 401(k) plan audit is within seven months of the end of the plan year. It must be conducted prior to the expiration of this period, although you can apply for an extension for an extra two and a half months if necessary.

What Aspects of a Plan Are Reviewed During a 401(k) Audit?

The prominent focus of any retirement plan audit is participant-related activity and transactions. As a result, an auditor will concentrate on the following areas:

• Demographic characteristics
• Payroll data
• Distribution documents
• Deferral percentages
• Claims that were paid concerning health and welfare plans
• Plan document requirements

The investments of the plan are especially important. Your plan’s financial statements must encompass all relevant disclosures required in the reporting framework (which would be directed by the generally accepted accounting principles).

Learn More About 401(k) Plan Audits and Requirements

A successful employee benefit plan audit requires you to prepare ahead of time to ensure the process moves smoothly and minimizes time and cost for all parties involved. As such, it can be difficult to manage the steps effectively, particularly if you are new to the requirements associated with a 401(k) audit.

Expert assistance is invaluable to navigate the process and understand your position. The more prepared you are for your audit, the more efficient the entire process will be for your staff, company and the auditor.

If you need help managing your EBP audit requirements, contact the experts at Warren Averett.

This article was originally published on December 16, 2020 and most recently updated on May 20, 2024.