What are Agreed-Upon Procedures, and when do you need them?

July 15, 2023

What are Agreed-Upon Procedures, and when do you need them?

Don’t require a full-scale audit? There’s an alternative: agreed-upon procedures.

In our last blog, we discussed changes to 401(k) audit requirements that mean many small and mid-sized businesses won’t need a formal annual 401(k) audit. To summarize:

As a general guideline, businesses with 100 or more plan participants with account balances now require audits. Those with less don’t. (It’s a bit more complex—but that’s a topic for another day.)

Businesses and regulatory agencies have celebrated this change as a way to save time and money. But some business owners still worry about the long-term implications.

If yours is one of the thousands of businesses no longer subject to annual 401(k) audits, you may be feeling pretty good. Or, you may be feeling a little like you just had the safety net pulled out from under you. 

Without an audit, you no longer have the comfort of an outside pair of eyes assuring you that you’re doing everything right.

And you’re still required to be in compliance, of course. You must ensure that, indeed, you’re doing everything correctly. Not just because it’s the right thing to do by your people but also because it would prevent any nasty surprises should the IRS choose to audit your benefits plan. (It’s rare, but there are red flags that will earmark your plan for extra scrutiny.)

There is a way to have a third-party review your processes without a full-scale audit. It’s called Agreed-Upon Procedures.

So, what are Agreed-Upon Procedures, and when do you need them?


Catch problems without a full audit

Agreed-Upon Procedures (AUP) are a little like an audit but more streamlined. Instead of doing a risk assessment and a whole bunch of other things required for an audit, AUP focuses on testing a limited number of plan participants for errors.

This has benefits and trade-offs:

  • With a small sample, even zero errors don’t mean everything is perfect.
  • At the same time, AUP can be done faster and at a lower cost than audits.


Who should consider Agreed-Upon Procedures?

Companies that are still growing may need to resume annual 401(k) audits in the future. AUP keeps you on a stable footing, so it’s easier to meet those obligations.

If you have a high number of non-employee plan participants—usually company alumni—Agreed-Upon Procedures provide your plan an extra layer of protection.

If you have had changes to your benefits plan, such as the result of merger and acquisition (M&A) activity, new providers or partners, or new policy or process, a second look at your procedures by an objective outside party can prevent a small issue from turning into a big (expensive) audit later.

Cassell Plan Audits offers Agreed-Upon Procedures as an additional service to our clients to help you keep your 401(k) plan healthy without the cost and time of a full benefits plan audit. Contact us today to learn more.

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