Does your business offer a 401(k) plan to your employees? If you answered yes, your company may need an audit of your 401(k) plan. An Employee Benefit Plan or 401(k) Plan audit is something that might be required for your business to be in compliance with U.S Department of Labor (“DOL”) filing requirements. You may be required to attach audited financial statements when filing your plan’s Form 5500, which is due the last day of the 7th month after the plan’s year-end, July 31st for plans with a December 31st year end.
So how do you know if you need an audit? For starters, take a quick look at your most recently filed Form 5500. If your plan has greater than 100 participants at the beginning of the plan year (January 1st for most plans), you should be filing a Schedule H with your Form 5500. If the number of participants is less than 100, you should be filing a Schedule I. In general, if you’re filing a Schedule H—that is, you have 100 or more participants (defined as “eligible employees”), more than likely, your plan needs an audit.
Identifying who is an “eligible employee” and, therefore, considered a participant, is crucial in determining if there is an audit requirement. The term “eligible employee” includes all employees who are eligible to be in your plan, not just those who are participating. When determining if your plan has more than 100 eligible employees, you must consider:
- Active participants – those already participating in the plan or those who have opted out of the plan.
- Retired or separated participants – those who are no longer employed but are still receiving benefits or have not yet taken their individual account balance out of the plan.
- Deceased participants – those who passed away but have beneficiaries that are still receiving benefits.
Some exceptions to the audit requirement include:
- Having a short plan year, i.e., 7 months or less
- Having between 80 and 120 eligible employees for the current year after filing a Schedule I the previous year; you are allowed to continue filing the Schedule I until your plan reaches 121 eligible employees.
Please contact us or check out this chart for help on determining your need for a 401(k) audit:
If you do require an audit, you will need to include plan financial statements audited by an independent certified public accountant for the Form 5500 to be accepted by the DOL.
Please understand that these are general guidelines. You should contact your adviser at WB with any questions or concerns.