Employee Benefit Plan (401(k)) Audit
Service description
An ERISA plan audit is the independent examination a retirement plan's financial statements must undergo once the plan is large enough, performed by a qualified public accountant and filed with the plan's Form 5500. The auditor tests participant data, contributions, benefit payments and investments, and issues an opinion that becomes part of the plan's annual report to the Department of Labor.
Common industries
Any employer, in any industry, sponsoring a 401(k) plan large enough to require an audit.
ROI
It's mandatory at scale, so the value is a clean, on-time audit that avoids DOL penalties and late-filing risk — and it recurs every year.
Benefit
The independent audit a retirement plan must obtain once it crosses the participant threshold, filed with the plan's Form 5500.
Why get it
ERISA requires an independent qualified public accountant's audit once a 401(k) plan reaches 100 or more participants with account balances; filing Form 5500 without one, when the plan is large enough to require it, is a compliance failure.
When you benefit
Recurs every plan year once the plan reaches 100 or more participants with account balances, timed to the Form 5500 filing deadline, with a short extension if timely filed.
What it costs
Usually a fixed fee, priced to the plan's number of participants and investment types.
When you pay
Commonly billed as one fee once fieldwork is complete and the opinion is ready to file, though some firms bill a deposit at the start of fieldwork and the balance at delivery.
Other costs
Correcting a data or operational error the audit turns up — a late deposit or an eligibility mistake — can mean a separate correction filing under a DOL or IRS correction program.
Risks to know
An audit the DOL finds deficient can force the plan to redo it, and the DOL has referred substandard audits to state licensing boards. A late or missing Form 5500 draws separate penalties that accrue per day.
When risks arise
A deficiency usually surfaces only if the DOL reviews the filed report, which can happen well after the plan year closes; a late-filing penalty, by contrast, starts accruing right at the missed deadline.
The process
The auditor plans the engagement around the plan's investments and transactions, tests participant data, contributions, distributions and investment activity, and drafts financial statements and its opinion. The sponsor reviews the draft before the auditor's report is attached to the Form 5500 and filed.
Your commitment
The plan sponsor gives the auditor participant census data, contribution and distribution records, investment statements, and the plan document and any amendments, and makes plan-level staff available during fieldwork.
Documents to gather
- Participant census and eligibility data for the plan year
- Contribution, distribution, and loan records
- Trust and investment statements from the plan's custodian
- Plan document and any amendments adopted during the year
Helpful reading
- Selecting An Auditor For Your Employee Benefit Plan — U.S. Department of Labor
- DOL report points out deficiencies in employee benefit plan audits — Journal of Accountancy
Further research
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