Short answer: an ERISA audit is generally required when an employee benefit plan has 100 or more participants at the beginning of the plan year. At that point the plan files Form 5500 as a large plan, with audited financial statements from an independent qualified public accountant (IQPA).
If your company sponsors a 401(k) or other benefit plan, this is one of the bigger compliance milestones you'll hit as you grow. The best time to prepare is well before you reach it.
Under ERISA and Department of Labor (DOL) regulations, a plan with 100 or more participants at the beginning of the plan year generally must:
This most often affects 401(k) plans, 403(b) plans, and employee stock ownership plans (ESOPs). Filing without a required audit can lead to a rejected Form 5500 and DOL penalties.
This is where companies get caught off guard. For defined contribution plans like 401(k)s, plan years beginning on or after January 1, 2023 count participants who have an account balance at the beginning of the plan year. That generally includes:
Before 2023, eligible employees counted even if they never contributed. The change helped many plans, but former employees with small balances still push counts up faster than expected. Other plan types may still use the older counting method, so confirm the rule that applies to your plan.
If a plan had between 80 and 120 participants at the beginning of the plan year, it may file in the same category (small or large) as the prior year. So a plan that filed as a small plan last year can generally keep filing as a small plan, without an audit, until it exceeds 120 participants.
Two catches: the rule only helps plans that previously filed as small plans, and once a plan files as large, it generally keeps including audits going forward.
Not every CPA firm performs employee benefit plan audits, and the DOL closely monitors audit quality. Starting early gives you time to compare firms, understand pricing, and lock in timelines.
Auditors review payroll and contribution processes, eligibility and enrollment, census data, timeliness of employee deferrals, and whether the plan is operated according to its document. Finding issues before the audit year lets you fix them proactively.
Expect requests for trust statements, participant census reports, payroll data, plan documents and amendments, and service provider SOC reports from your recordkeeper.
The audit and Form 5500 require coordination between your finance or HR team, recordkeeper, third-party administrator, and auditor. Starting early keeps the filing on schedule.
No. Most plans need one only once they reach 100 participants at the beginning of the plan year, subject to the 80-120 rule and limited exemptions.
The DOL may reject the Form 5500 filing, which can lead to penalties and required corrections.
Most take four to eight weeks, depending on plan complexity and how organized the documentation is.
FirmKey provides audit services, including employee benefit plan audits, plus the readiness work that makes a first audit smoother. Talk to us if your plan is approaching the threshold.