If you sponsor a 401(k) plan for your employees, you’ve probably heard talk about retirement plan audits. Maybe someone told you you’ll need one once you hit 100 participants… or was it 120? Eligible? Contributing? It’s confusing, we get it.
The good news? You’re not alone. And as your friendly neighborhood 401(k) plan auditor, I’m here to break it all down—clearly, and as little jargon as possible! 😆
Let’s get into what a 401(k) audit is, why it matters, and how the new rules determine whether your plan is due for one.
What’s a 401(k) plan audit, anyway?
At its core, a 401(k) audit is a thorough review of your company’s retirement plan—kind of like a wellness check for the financial and operational health of your plan. It’s conducted by an independent CPA (like yours truly) and looks at whether your plan is being run in compliance with Department of Labor (DOL) and IRS regulations.
Some of the things we dig into during an audit:
- Whether contributions are calculated correctly and are being deposited on time
- If eligibility and participation rules are being followed
- Whether loans and distributions are handled properly
- If your plan passed required compliance testing
- And whether your financials are accurate and complete
Think of it as an extra layer of protection—for your business and your employees’ retirement savings. And, oh yeah:
If you meet certain criteria, you are required to have an outside third party (like Cassell Plan Audits) audit your 401(k) plan. We’ll explain that requirement in just a minute.
Why Do Audits Matter?
Two big reasons:
1. Compliance = Peace of Mind
The DOL and IRS don’t mess around when it comes to retirement plans. A proper audit ensures you’re following the rules, so you can avoid penalties, late filings, or issues that might jeopardize your plan’s tax-qualified status.
2. It’s About Trust
Your employees are counting on you to safeguard their future. A clean audit helps confirm the plan is being managed responsibly and gives your team confidence in their benefits.
What Triggers a 401(k) Audit? (Here’s Where It Gets Interesting)
The rules around who must get a third-party audit just changed recently, and if you’ve been in the 401(k) world for a while, this is a big shift.
Old rule:
You needed an audit if your plan had 100 or more eligible participants, even if they weren’t contributing.
New rule (as of 2023 filings):
Now, you need an audit if your plan has 100 or more participants with account balances as of the first day of the plan year.
That one word—balances—makes a big difference.
A quick example
Let’s say your plan has 145 employees who are eligible to participate. (Don’t forget, long-term part-timers can now be eligible, too.)
Out of those, 92 are actively contributing to the plan, and 7 former employees still have balances in their accounts. (Yep, retired and even deceased employees can count, if they carry a balance.)
So, you’ve got 99 participants with balances—which means your plan is considered a small plan for audit purposes, even though you have well over 100 eligible folks on the books.
Under the old rules? You’d likely have needed an audit.
Under the new rules? You’re in the clear—at least for now. But you may still want us to review your plan, for peace of mind and to prepare for when you grow.
What about the 80–120 rule?
Still applies! If your plan has between 80 and 120 participants with balances, and you filed as a small plan last year, you can stick with that again this year. But once you cross the 120-mark, welcome to audit-land. (Learn more about the 80-120 rule here.)
Bottom line
- A 401(k) plan audit is a check-up to make sure your plan is being managed correctly and legally.
- You now only need to be audited by an outside auditor if your plan has 100+ participants with a balance, not just those eligible.
- This change could save you some stress (and cash), so it’s worth verifying your headcount before assuming you’re due for an audit.
Not sure where your plan falls? Reach out to a qualified 401(k) auditor—we live and breathe this stuff and are happy to take a look before you file that Form 5500. Contact us here at Cassell Plan Audits, anytime.
Because when it comes to your plan, it’s better to be safe, smart, and audit-ready than caught off guard.
Photo by Kampus Production
