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Audit & Assurance, Employee Benefit Services

When Does a Retirement Plan Require an Audit?


Generally, defined contribution or defined benefit plans with 100 or more participants on the first day of the plan year are subject to the audit requirement. However, there is an exception under the 80 to 120 participant rule. This ruling allows plans with between 80 and 120 participants, as of the first day of the plan year, to file Form 5500 in the same category (“large plan with audited financial statements” or “small plan without audited financial statements”) as indicated on the prior year Form 5500 filing. The number of participants dictates whether you have a large or small plan.

The new participant counting methodology (per the instructions to Form 5500) will count only participants with an account balance at the beginning of the plan year.  For the inception year of the plan, there is an exception to the counting methodology, whereby the participant count is based on participants with an account balance at the end of the plan year.

Once the proper participant count has been determined, the plan administrator may evaluate whether or not an audit is required. The following table illustrates most possibilities:

Plans with more than 120 participants at the beginning of the plan year automatically fall under the audit requirement with no applicable exceptions. If, at the inception year of a plan, the end-of-year participant count is over 100, an audit is required.  Plans with fewer than 100 participants are exempt from the Department of Labor audit requirement. If a plan currently has 100-120 participants but exceeded 120 participants in the prior year, an audit is required until the participant count falls below 100. If a prior year audit was not required and the plan has 100-120 participants, the plan administrator can elect to undergo an audit, but it is not required by the Department of Labor.

Still unsure if your retirement plan needs an audit?  Contact us for a second opinion or an independent review of your situation.

Our ERISA professionals can help ensure your employee benefit plans are cost-effective and support your business objectives while complying with Department of Labor, IRS, and ERISA rules and regulations. Contact us today!


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