An annual Form 5500 Audit, also called a 401(k) audit or benefit plan audit, is a  required obligation for many large and mid-sized businesses. This audit aims to ensure that the retirement plan offered by a company complies with government regulations and requirements outlined in a company’s 401(k) plan. 

What Is a Form 5500 Audit?

A Form 5500 audit is part of the reporting requirements of the Employee Retirement Income Security Act of 1974 (ERISA). This law provides minimum standards for most voluntarily established retirement and health plans in private industry to protect individuals in these plans. There are three versions of Form 5500, each with different filing requirements. Take note, 401(k) plans can have detailed filing obligations.

Does My Company Need a Form 5500 Audit?

While companies must file Form 5500, not all companies must complete an annual audit. The United States government outlines strict rules to determine which businesses don’t need an audit and which do. 

The threshold for a Form 5500 Audit is if your company has 100 or more eligible participants in your employee benefit plan at the beginning of the plan year. In that case, you must have an independent audit by a third-party Certified Public Accountant (“CPA”). 

Who Is Considered an Eligible Participant?

The keyword “eligible” is essential to understand if a Form 5500 audit is required. Whether or not an employee elects to participate in the employee benefit plan is irrelevant.  Eligible participants include:

  • An employee that has satisfied your Plan’s eligibility requirements
  • Employees currently participating in the Company retirement plan
  • A retired employee who is now receiving or can receive 401(k) benefits.
  • A separated employee who is currently receiving or can receive 401(k) benefits.
  • Deceased employees with beneficiaries who currently receive or can receive 401(k) benefits. 

Does the “80/120” Rule Apply to You?

While the minimum requirement of an annual audit is 100 eligible participants, the “80/120” rule allows some flexibility for certain benefit plans. The “80/120 Rule” permits a 401(k) plan with between 80 and 120 participants on the first day of the plan year to file Form 5500 in the same category as the prior-year return. This rule allows large 401(k) plans with between 100 and 120 participants to avoid a Form 5500 audit until the first year the plan has 121 or more eligible participants. 

How To Prepare for a Form 5500 Audit

If your company requires a Form 5500 audit, it’s essential to be familiar with the audit process. During an audit of your retirement plan, the auditor will be looking at your plan’s assets and activities. You can prepare by:

  • Familiarizing yourself with your plan documents and federal laws governing benefit plan audits.
  • Organizing your benefit plan documents, including payroll reports, distribution information, current participants, etc.
  • Communicating with your auditor with any questions.

Hire A Trusted CPA Firm For Your Audit

A Form 5500 audit has many requirements and time-sensitive deadlines. Hire a qualified, certified public accountant that you can trust to audit your benefit plan to maintain compliance.

If you have any questions or need assistance with an upcoming benefit plan audit, our team at Assurance Dimension can help.

Contact us today to work with a CPA firm with an experienced team of benefit plan auditors.