Does your 401(k) plan need an audit?
In general, 401(k) plans with 100 or more participants (as of the first day of the plan year) qualify as large plans, and plans with fewer than 100 participants are small plans. A large plan must complete Schedule H of Form 5500, which require an audit by external auditors.
How to determine participants?
Employees are considered participants as soon as they have satisfied the plan’s specific eligibility requirements, whether or not they have enrolled or elected to join the plan. Participants include:
– Active employees who enrolled or elected to join
– All eligible employees
– Terminated participants (e.g. separated, retired or deceased employees) who still have plan balances
What and when to file?
A plan must file Form 5500 every year by the last day of the 7th month after the plan year-end. For a plan that adopts calendar year, the due date is July 31. However, plans can file extension and the due date extends to October 15. For a large plan, the audit report must be attached to Form 5500, which must be filed electronically with the IRS.
When to conduct the plan audit?
The audit should be conducted well in advance of the July 31 deadline. It normally takes two to four weeks to complete an audit. Therefore, the best time for a plan audit is May or June each year.
How to prepare for the plan audit?
The plan sponsors or administrators should complete an audit package that comprises of detailed descriptions and reports of the plan such as summary plan descriptions, plan agreements, detailed reports of plan activities (contributions, withdrawals, loans, etc.) and plan balances, detailed reports of accounts by participants, etc. In addition, certain supporting documents and confirmations with participants or third parties may be required by auditors during the audit.
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