Here’s how to determine the number of qualifying participants for your 401(k) audit.

The total number of participants with balances in your retirement plan drives how the IRS Code and the Department of Labor see your plan. For audit purposes, this definition affects whether your 401(k) plan is considered large or small and accordingly, whether you must hire an outside party to audit your plan each year.

However, current employees actively contributing to your 401(k) plan every payday are not the only eligible participants. They actually fall into three main categories:

1. Active Employees: 

Include current employees who have started contributing to the plan and have a balance at the beginning of the plan year. Hence why tracking contributions and balances is key to complying with plan rules and regulations.

2. Retired or Separated Employees: 

Count former employees who receive or are entitled to benefits from the plan as long as their accounts have balances. For example, those who have transferred or rolled over their funds after leaving the job are excluded from this group.

3. Deceased Employees: 

Include former employees who have passed away as eligible participants if they carry a balance and have beneficiaries entitled to benefits from the plan. Proper account management ensures beneficiaries get what they’re entitled to.

Got M&A?

If your company recently merged with or acquired another company, identifying active and separated employees can be more complicated. Carefully review how your company handled existing retirement plan participants at the merged or acquired companies. 

When you understand which participants count toward your audit status, you can stay compliant and administer your plan accurately. 

Now that you know the number of eligible participants with balances, you can determine whether your 401(k) plan is large or small. If 100 or more eligible participants carry a balance, the IRS considers your plan “large,” and therefore you must hire an outside firm to audit it each year.  

Given the complexities of retirement plan management and audit requirements, we recommend getting help from experienced professionals. If you have any questions about eligible participants or 401(k) plan audit requirements, contact Cassell Plan Audits today.