Employers: Are you required to have an employee benefit plan audit?

By Justine Gegner

The requirement for an employee benefit plan audit in Chicago is based on the type of Form 5500, “Annual Return/Report of Employee Benefit Plan,” filed by the plan.

Plans that cover 100 or more participants at the beginning of the plan year will generally file as a “large plan” and will require an audit. Plans below the 100 covered participants are considered “small plans.” Individuals that have separated employment with a Company but still have funds in the plan, are still considered participants for purposes of the count to 100.

Generally, if you file as large plan on the form 5500, the benefit plan is required to have an audit and if you file as a small plan you are eligible to file form 5500-SF and will not require and audit.

However, there are two exceptions to this rule.

Two Exceptions to the Employee Benefit Plan Audit Rule

1. The 80-120 Participant Rule

If the plan has between 80-120 covered participants and in the previous year filed as a small plan on the Form 5500, the plan may still file as a small plan in the current year and would not require an audit. Once the plan reaches 121 covered participants, it will be required to file as a large plan.

Note that this rule applies to plans that have previously filed 5500s. If this is the initial year of filing, a plan with 100 or more participants will file as a large plan and will need an audit as mentioned above.

Also, if the plan drops below 80 covered participants, it is considered a small plan and will not require an audit.

2. Short Plan Year Rule

You may defer the accountant’s examination and report if the plan year is 7 months or fewer. However, if this election is made in the prior year, the current year Form 5500 will need to be filed in accordance with the large plan rules.

If an employee benefit plan audit is required, a limited-scope audit may be performed if the investment information is prepared and certified by the trustee or custodian of the plan.

In accordance with ERISA section 103(a)(3)(C), the plan administrator may instruct the auditor to not audit investment information prepared and certified by the trustee or custodian of the plan. A full-scope audit would require the auditors to test plan investments for completeness and accuracy.

Contact DHJJ for a 401k Audit Quote

For more information about employee benefit plan audits in the Chicago Suburbs, contact DHJJ at 630-420-1360, or through the form below.