When does my Employee Benefit Plan need to have an audit?

Many businesses set up retirement plans as a benefit for their employees. This can include large publicly held corporations, small private companies, as well as nonprofit entities. The types of plans that are typically set up include 401(k) plans, defined benefit pension plans, and 403(b) plans.

The Department of Labor ("DOL") regulations require an audit for a “Large Plan.” The number of “eligible” participants determines whether the plan is a large plan, and is based on the number of eligible participants at the beginning of the plan year. If you have 100 or more eligible participants, the plan is a large plan.

Eligible participants not only includes the employees actively contributing to the plan, but also employees who may not be contributing, but are eligible to contribute. Eligible participants also includes former employees that still maintain account balances.

It is important to provide proper employee census data to the plan record-keeper so they can determine how many eligible participants the plan has. The number of eligible participants is normally much larger than the number of active participants. A common mistake occurs when plan sponsors provide only active participant data to their record-keeper rather than a complete listing of all employee census data. An audit may be required, and if not performed, may expose the plan sponsor to costly penalties.

There is an exception that the DOL provides, known as the 80/120 rule. According to the rule, if a plan has between 80 and 120 eligible participants at the beginning of the plan year they can continue to file their Form 5500 as a small plan and can defer the audit annually until they reach 121 eligible participants. Once the plan reaches at least 121 eligible participants, an audit will be required annually as long as they have over 100 eligible participants. If the number drops below 100 eligible participants, an audit will no longer be required and may file as a small plan.

For plans with a calendar year ending on December 31, Form 5500 along with the audited plan financial statements is due by July 31.

Kieckhafer Schiffer LLP has the experienced staff required to navigate through the complexity of employee benefit plan audits. Our auditors are trained and educated in the most current ERISA, DOL, and generally accepted auditing standards, and we understand the specific areas of testing that the DOL requires. Our firm is a member of the American Institute of CPA’s Employee Benefit Plan Audit Quality Center. As your plan’s auditor, we will ensure that your plan will carry out its legal responsibility to file complete and accurate annual returns and audit reports for each year a plan is required to have an audit.