401(k) annual audit

What is a 401(k) annual audit?

A 401(k) plan audit is an official review of your company's retirement plan conducted by an independent, third-party accounting firm. To ensure objectivity, the firm you choose must not have any ties to your business or the financial company that manages your plan's recordkeeping.

Why 401(k) annual audits matter to business owners

These audits are designed to verify that your plan is operating correctly and the information reported on your plan's Form 5500 and financial statements is accurate. Audits help ensure your retirement plan successfully meets all IRS and Department of Labor (DOL) regulations.

At the end of the process, you receive communication and management recommendation letters from the auditor to help you fix any areas of noncompliance and improve your processes for the future. While highly beneficial for keeping your plan compliant, annual audits can involve hours of manual work and can cost employers between $10,000 and $15,000.

Who is impacted by 401(k) annual audits?

Plans are generally required to undergo an annual 401(k) audit if they have a "large" plan, which means your plan has 100 or more participants with account balances at the beginning of the plan year. However, if your plan previously filed as a small plan, the DOL's special "80-to-120 participant rule" allows you to avoid the large plan audit requirement until you exceed 120 participants at the start of a plan year.

This specific calculation method went into effect beginning in 2023, focusing strictly on individuals with active balances rather than total eligible employees. Additionally, modern audits must now comply with SAS 136 standards (ERISA Section 103(a)(3)(C)), which place greater accountability on the employer to maintain flawless, auditable plan records

To save time and minimize frustration, plan sponsors can proactively prepare for an audit by keeping their plan documents organized. Additionally, businesses can avoid problems during the 401(k) deposit review by integrating payroll and recordkeeping systems.

Audit Relief^® from Human Interest helps reduce the burden of costly, time-consuming 401(k) audits. Our first-of-its-kind solution helps automate manual tasks and consolidates data across multiple systems. Learn more about Audit Relief.