Introduction
In February 2023, the Department of Labor (DOL), the IRS, and PBGC finalized Form 5500 financial audit statement requirements. These new DOL 401k audit requirements are effective for plan years beginning on or after January 1, 2023. A significant change to this revision is the threshold of deciding which plans will require an independent employee benefit plan audit attached to the Form 5500 filing.
In this article, we’ll explain the changes to the DOL 401k audit requirements and how they might affect your benefit plan audit engagement.
Changes to DOL 401k Audit Requirements
Previous DOL guidance required classified benefit plans with more than 100 eligible participants as “large plans,” which required an annual audit (with only a few exceptions, such as the 80/120 rule). The number of eligible participants was determined on the first day of the plan year—regardless of how many participants elected to join the plan or had accounts. These benefit plan audits were required to ensure compliance with ERISA and the IRC—but could be a hefty financial burden on smaller organizations.
The revised DOL 401k audit requirements redefine what constitutes a “large plan.”
Updated Participant Count Method
Under past guidelines, all employees eligible to participate in the retirement plan were counted towards the audit threshold—regardless of whether they opted out, were terminated, or were no longer explicitly eligible. However, this calculation has been modified under new DOL 401k audit requirements.
If the retirement benefit plan has at least 100 participants with active accounts, then it’s considered a “large plan,” and an annual benefit plan audit is required. According to the DOL, around 19,500 large plans will no longer require a yearly audit due to this participant-count methodology change.
Implications of New Guidance
This new guidance from the DOL is effective for plan years that begin on or after January 1, 2023. The DOL anticipates these updates will significantly reduce the administrative burdens and costs for small plans and their sponsors. This move is seen as a strategic effort to encourage more companies to offer 401(k) plans and to ease the financial strain on existing plan sponsors.
Key Takeaways for Plan Sponsors
For plan sponsors, it’s essential to understand these changes to DOL 401k audit requirements for plans that began on January 1, 2023. If your organization was previously required to have a retirement plan audit due to its size, with these new DOL 401k audit requirements, you may find that such an audit is no longer necessary. Check with your CPA firm to determine what the revised requirements mean for your situation.
Conclusion
As accounting updates are announced and regulatory requirements shift, it’s critical for companies to stay educated on these changes and how they may affect their business.
For more detailed information and guidance, we encourage you to reach out to our team or refer to the DOL’s official guidelines. As a CPA firm experienced with benefit plan audits, we’re here to help you adapt to any audit changes as they arise so you can manage your 401k plans compliantly.
Contact us to learn more about our benefit plan audit services.
