You crossed the 100+ balance-holding participants threshold. Your plan is officially “large.” And somewhere on your to-do list, between open enrollment and the year-end close, sits a line item you’ve never had to think about before: hire your first 401(k) plan auditor.
This isn’t like hiring any other vendor. Your plan is a separate legal entity from your company, with its own financial statements, filing deadline, and rules about who is even allowed to audit it.
So before you email the CPA who does your corporate return….
1. Surprise twist: Your regular accountant probably isn’t the answer
That’s the first instinct for most plan sponsors, and a reasonable one. Why not stick with the familiar? Two reasons: independence and volume.
Your plan auditor has to be independent of the plan. Depending on what other work your firm does for you, that can be a genuine obstacle. Ask them directly.
A generalist firm might perform a handful of benefit plan audits a year, squeezed between tax seasons. ERISA is its own world. And the Department of Labor has studied plan audit quality more than once, always with the same finding: the fewer plan audits a firm performs, the higher its deficiency rate. (More on what that means, and the two questions you should ask any potential auditor.)
Your CPA may be excellent. This is simply a different specialty.
2. Start sooner than feels necessary
For a calendar-year plan, your Form 5500 is due July 31, and an extension buys you until October 15. Which makes it tempting to start looking in, say, June.
Don’t. Good specialty firms book up. And a first-time audit carries extra work: your auditor has to get comfortable with your beginning balances, which means digging into prior years. (Here’s why <LINK>.)
Aim to have a firm engaged in the first half of the year being audited. Being early costs you nothing, and buys you time if you need to make changes.
3. Understand your scope before you compare prices
Two proposals that differ sharply in price may be describing two different engagements.
A non-ERISA Section 103(a)(3)(C) audit (formerly known as full scope audit) covers everything, including the plan’s investments.
An ERISA Section 103(a)(3)(C) audit (what used to be called “limited scope”) lets you instruct the auditor not to test investment information already certified by a qualified institution—typically your bank, trust company, or insurer. Contributions, distributions, and eligibility are audited either way.
That election is yours to make, not your auditor’s, and it comes with documentation responsibilities of its own. Decide before you read a single proposal, so you can compare like with like.
4. Three questions beyond the usual checklist
We’ve already published the credentials checklist—EBPAQC membership, peer review results, ERISA-specific continuing education. Start there. For a first engagement, add these:
- “Who’s actually doing the work?” Not who’s on the proposal. Who’ll be in your files—and will it be the same people next year?
- “How do you handle a first-year audit?” A specialist will bring up beginning balances before you do. If the question catches them off guard… that’s useful information.
- “Will we talk, or will I get a questionnaire?” Some firms run the entire engagement through forms. We’ve never been fans. A conversation allows us to cover ground the questionnaire didn’t think to ask about.
On fees: a quote well below the others usually means a narrower scope or an optimistic estimate. Ask what’s excluded, and what happens to the fee in year two.
5. Document how you decide
Under ERISA, selecting and monitoring your plan’s service providers is generally treated as a fiduciary function. Your auditor is a service provider.
Which means the process matters, not just the outcome. Keep the paper: who you considered, what you asked, what they quoted, and why you chose the firm you chose.
It takes an afternoon now. It’s difficult to reconstruct later.
The short version
Your first audit is a milestone, not a punishment. It means your plan grew, and that’s good news for your employees.
Choose a specialist. Choose early. Know your scope. Ask who’s doing the work. And record how you decided.
One last thing: year one is the heavy one. Year two is where continuity pays off—if the same team comes back. That’s the real argument for specialization.
Cassell Plan Audits has had one focus since 2013. The same seasoned faces year after year, the highest “pass” level of AICPA peer review, and conversations instead of questionnaires. Here’s more on why plan sponsors work with us.
First audit on the horizon? Let’s talk.
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