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Do You Need an Audit

When a 401k audit is needed

Over 100 Eligible Participants

Your company has grown to over 100 eligible participants (known as a large plan). There are three different types of participants:

  • Active participants - those that are currently employed by the company and eligible to participate (note that it does not matter if they choose to participate or not, i.e., you can have two employees actually participate in the plan and the rest of them not participate, but eligible, and still need an audit)

  • Retired/separated participants - those that are no longer employed by the company but are entitled to receive benefits from the plan (for example, a retired or terminated employee that still holds assets in the plan)

  • Deceased participants - those that are deceased or have beneficiaries receiving benefits from the plan 

If the plan has under 100 participants at the beginning of the plan year, then the audit requirement is not triggered. 

When a 401k audit is needed

Exceptions to the Audit Requirement

There are two exceptions to the rule of needing an audit:

  • A short plan year - if the plan has over 100 eligible participants and the plan year is seven months or less, then the company can defer the audit requirement to the following plan year. If the plan then has less than 100 eligible participants in the subsequent year the plan will still need an audit performed for the short plan year

  • The 80 to 120 participant rule - if the number of participants in the plan was between 80 and 120 and a Form 5500 was filed in the prior year, the company can elect to complete the current year 5500 in the same manner as the prior year (which was more than likely the short form, or 5500-SF). Now, if the the participant number is 121 or more, then an audit will be required regardless what type of form was filed in the prior year

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