How Do You Know If Your 401(k) Plan Requires An Audit?

By McClintock & Associates | December 20, 2016

By Robert J. Behr, CPA

The answer to this question depends on if your 401(k) plan is deemed to be “small” or “large”. This is based on the number of “eligible” participants in your plan at the beginning of the plan year. Technically, the Department of Labor (“DOL”) requires an independent audit if the total number of eligible participants is at or exceeds 100, which is considered to be a large plan. In order to determine if you have met this threshold, it is important to have a thorough understanding of your plan’s eligibility rules as well as an accurate count of eligible participants.

An eligible participant is defined by one of the following categories:

  • Active – individuals currently employed who are covered under the plan and are receiving credited services. An active participant would include those employees who have elected to participate in the plan as well as those who are eligible to participate but have elected not to do so.
  • Retired or separated – individuals who are no longer employed by the employer but who are receiving benefits or are entitled to receive benefits under the plan.
  • Deceased – individuals who are deceased and have one or more beneficiaries receiving or entitled to receive benefits.

There are a couple of exceptions to the DOL’s audit requirement of 100 eligible participants:

One exception is known as the “80-120 Participant Rule”. If your plan has between 80 and 120 eligible participants at the beginning of the current plan year and you were not required to have an audit performed in the previous year (i.e. small plan), then you can forgo the audit for the current year. Also, you can continue to waive the audit requirement as long as your total eligible participants don’t exceed 120 at the beginning of the plan year.

In addition to the 80-120 Participant Rule, another exception known as the “Short Plan Year” allows you to defer the audit requirement to the following year if your plan qualifies as a large plan and the plan year is seven months or less. However, if the plan qualifies as a small plan in the subsequent year, the short plan year will still need to be audited.

McClintock & Associates has been performing employee benefit plan audits for over 20 years. If you have any questions regarding your plan or are not sure if you need an audit, please contact us at 412-257-5980.

Volume 1, Issue 2
Spring 2014

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