When Are Retirement Plan Audits Required?

July 11, 2016 By David Cash

If you currently work with a retirement plan third-party administrator for your company retirement program, then you know that 401k audits are a way of life.

The Department of Labor (DOL) is tasked (along with the IRS) with the unenviable job of implementing rules and enforcing those rules for retirement plans.  For Defined Contribution Plans and Defined Benefit Plans, the rules define which plans are required to hire an independent firm that is licensed or certified as a public accountant by a State regulatory authority.

 When is my Retirement Plan Required to Have an Audit Performed

How often do Retirement Plans Need to be Audited?

According to the DOL, “Generally, Federal law requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file an annual return/report (Form 5500 series).(1) If your employee benefit plan requires an audit, one of the most important duties of the plan administrator is to hire an independent qualified public accountant. The plan's sponsor is the plan administrator under the law unless another individual or entity is designated to assume this responsibility. The following material will assist you, as plan administrator, in selecting an auditor and reviewing the audit work and report.”

The term “generally” is used due to a few situations where an audit can be waived.  According to the DOL:

  • “Pension plans with fewer than 100 participants at the beginning of the plan year are eligible if they meet the conditions for an audit waiver under 29 CFR 2520.104-46.”
  • “If the number of participants covered under the plan as of the beginning of the plan year is between 80 and 120, and a small plan annual report was filed for the prior year, the plan administrator may elect to continue to file as a small plan.” This is called the 80 to 120-participant rule.
  • There are other exceptions to the requirement to have an audit, such as a plan using a Code section 403(b) annuity arrangement that is exempt from the audit requirement under 29 CFR 2520.104-44 then it doesn’t have to meet the audit waiver requirement under other sections of the DOL rules.

There are some other conditions for an Audit Waiver besides the participant count:

  • As of the last day of the preceding plan year, at least 95% of a small pension plan’s assets must be “qualifying plan assets” or, if less than 95% are qualifying plan assets, then any person who handles assets of a plan that do not constitute “qualifying plan assets” must be bonded in an amount that at least equal to the value of the “non-qualifying plan assets” he or she handles.
  • The plan must include certain information (described below) in the Summary Annual Report (SAR) furnished to participants and beneficiaries in addition to the information ordinarily required.
  • In response to a request from any participant or beneficiary, the plan administrator must furnish without charge copies of statements the plan receives from the regulated financial institutions holding or issuing the plan’s “qualifying plan assets” and evidence of any required fidelity bond.

The “qualifying assets” referred to above are:

  • Any asset held by certain regulated financial institutions.
  • Shares issued by an investment company registered under the Investment Company Act of 1940 (e.g. mutual fund shares).
  • Investment and annuity contracts issued by any insurance company qualified to do business under the laws of a state.
  • In the case of an individual account plan, any assets in the individual account of a participant or beneficiary over which the participant or beneficiary has the opportunity to exercise control and concerning which the participant or beneficiary is furnished, at least annually, a statement from a regulated financial institution describing the plan assets held or issued by the institution and the number of such assets.
  • Qualifying employer securities, as defined in ERISA section 407(d)(5).
  • Participant loans meet ERISA section 408(b)(1) requirements, whether or not they have been deemed distributed.




Following these guidelines will help you determine if and which audit or report you will need to file. Do you need help with your company retirement plan? Contact us today or click the button below to schedule your consultation.

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