Key insights
- Learn when your employee benefit plan may require an audit and what the process means for your filing obligations, plan operations, and participants.
- Know the two available audit types, since your plan’s investment certification, compliance needs, and budget can influence which approach makes sense.
- Start preparing early with a qualified auditor so you can meet Form 5500 filing deadlines, address issues promptly, and avoid last-minute pressures.
- Use the audit as more than a requirement; its findings can help you strengthen internal controls, improve plan processes, and protect participants.
Does your 401(k) plan need an audit?
For employee benefit plan (EBP) sponsors seeking to support participant protection, improve plan operations, and address federal filing obligations, understanding audit requirements can help reduce the risk of compliance issues and last-minute delays.
Knowing what triggers an audit, which type may apply, and what to expect can help you prepare earlier, streamline the process, and make informed decisions for your plan.
What is an employee benefit plan audit?
An assessment of your plan’s financial reporting and compliance
An audit provides an independent assessment of your employee benefit plan’s financial statements, including testing plan-specific areas such as contributions, benefit payments, and participant eligibility; evaluating internal controls; identifying any operational or compliance issues; and issuing a formal audit report. Plan sponsors can use it to better understand the plan’s financial reporting and compliance responsibilities to support plan administration. A federal requirement for certain retirement plans.
As part of annual reporting and Form 5500 filing, 401(k) plans and other qualified retirement plans with a certain number of participants with a balance in the plan must have an annual audit.
An obligation based on participants with account balances
Prior to 2023 Form 5500 filings, audits were required based on the total number of eligible participants, which included those that were actively participating, former participants that still had a balance in the plan, and also those that were eligible even though not participating in the plan.
The rules have since changed to remove the requirement to include those who are eligible and not participating in the participant count.
What triggers a 401(k) audit?
Employee benefit plan audit requirements vary by the number of plan participants.
Fewer than 100 participants generally means no annual audit
Plans with fewer than 100 participants with a balance on the first day of the plan year can file Form 5500-SF, rather than using Form 5500. Form 5500-SF includes a waiver of the annual audit requirement and therefore there is no requirement to attach an Independent Qualified Public Accountant (IQPA) report to your filing.
More than 100 participants generally triggers an annual audit
Plans with more than 100 participants with a balance on the first day of the plan year are considered to be large plans and therefore must use Form 5500.
The 80 – 120 participant rule may delay the audit requirement
In general, this means an audit is required — but there is an exception to this rule:
- If your plan had previously filed a Form 5500-SF as a small plan in the immediate preceding year, you can continue to file as a small plan until the plan has more than 120 participants with a balance.
- Rather than using Form 5500-SF, plans that meet this exception would use Schedule I instead of Schedule H to report financial information.
- Once the 120 threshold is met, the participant count would have to drop below 100 to no longer require an annual audit.
What type of employee benefit plan audit do you need?
There are generally two types of retirement plan audits, and they differ in scope and cost.
A 103(a)(3)(C) audit when investment information is properly certified
When plan management elects a 103(a)(3)(C) audit, the auditor does not perform audit procedures on investments and investment activity that is certified by a qualified institution. A qualified institution is a bank, similar institution, or insurance carrier that is regulated, supervised, and periodically examined by a state or federal agency.
To qualify for this treatment, the institution must certify that the investment information has been prepared in accordance with 29 CFR 2520.103-5 of the DOL’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 (ERISA).
The qualified institution must certify both the accuracy and completeness of the investment information. In this type of audit, the auditor does not provide an opinion on the certified investment information.
A non-Section 103(a)(3)(C) audit when full investment testing is needed
In a non-section 103(a)(3)(C) audit, also known as an ERISA audit, your auditor will not rely on an asset certification and instead will perform audit procedures on the plan investments and related investment income. This audit will include an opinion over the investments and related income.
Your investment certification generally determines which audit you need
Both 103(a)(3)(C) and ERISA audits are acceptable for your annual Form 5500 filing. In general, the cost to perform a 103(a)(3)(C) audit is less than that of an ERISA audit. Most plan sponsors opt for a 103(a)(3)(C) audit if they can obtain a proper certification over the investments and investment income.
Stay informed about the latest employee benefit plan rules and auditing standards. Get the report.
What happens in a benefit plan audit?
An IQPA completes the audit before the Form 5500 deadline
Once you know your plan requires an audit and which type you need, the plan sponsor engages an IQPA. The audit must be completed by the Form 5500 filing deadline, generally seven months after the end of the plan year, with an additional two and a half months available if an extension is filed.
Testing covers financial statements and plan operations
The IQPA audits the plan’s financial statements, including procedures around:
- Investments (only in an ERISA audit, does not apply for a 103(a)(3)(C) audit)
- Eligibility
- Contributions
- Loans
- Benefit payments
- Administrative expenses
- Other areas as deemed necessary
The audit procedures are performed under Generally Accepted Auditing Standards (GAAS) and also take into consideration certain ERISA requirements.
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Internal control findings may lead to recommendations
The auditor also documents and assesses the plan’s internal controls. During the audit and at its completion, the auditor may recommend improvements related to:
- Internal controls
- Plan processes or procedures
- Resolutions for errors and/or compliance issues noted
- Other matters
A final audit report is filed with Form 5500
At the end of the audit, the auditor provides the required formal communications and issues a final opinion on the financial statements.
The plan sponsor then attaches the IQPA’s report to Form 5500 and files the form electronically.
How to prepare for an EBP audit
Start early and agree on timing
Engage your auditor well before the Form 5500 deadline. Confirm the audit scope, timeline, key contacts, and requested documents so your team can plan around other reporting responsibilities.
Gather complete and accurate records
Collect current plan documents, participant data, payroll and contribution records, benefit payment and loan information, investment statements, and prior-year audit materials. Check that records reconcile before sharing them.
Review plan operations before fieldwork
Compare plan activity with the plan document and follow up on discrepancies, late contributions, or missing support. Assign a point person to answer questions and track requests throughout the audit.
How CLA can help with employee benefit plan audits
A retirement plan audit may provide insights that can lead to process improvements and stronger internal controls for your plan.
CLA is one of the leading providers of employee benefit plan audits in the country, providing compliance support and plan consulting to help you balance document requests, filing deadlines, and questions about plan operations.
Our team can help identify reporting or control issues, explain practical next steps, and coordinate the EBP audit with related tax and advisory needs. This connected approach can help reduce disruptions, support timely filing, and give plan sponsors clearer information for ongoing administration.