Generally speaking, 401(k) plans with fewer than 100 participants at the beginning of the plan year are considered small employee plans and eligible for the Small Plan Audit Waiver. However, the Department of Labor (DOL) has identified the range of 80 – 120 participants (at the beginning of the plan year) as a grey area where the company has the option to continue as a small employee plan or elect large employee plan status. Please note all large plans are required to be audited annually. The following chart illustrates the choices a company has when it falls into the 80 -120 participant range: 

Number of Participants at Beginning of Current Year Requirements Followed for the Previous Year Form 5500 Requirements to be Followed for the Current Year Form 5500
80 – 99 (Inclusive) Small Plan Small Plan
80 – 99 (Inclusive) Large Plan May elect to file Form 5500 again as large plan or switch to small plan
100 – 120 (Inclusive) Small Plan May elect to file Form 5500 again as small plan or switch to large plan
100 – 120 (Inclusive) Large Plan Large Plan
More than 120 Large Plan Large Plan
More than 120 Small Plan Large Plan

 

The number of participants at the beginning of the current year is determined by the number that was reported on Line 7 of Form 5500 in the prior year. 

For a plan to be eligible for the Small Plan Audit Waiver, the following conditions must be met: 

  1. At least 95% of the plan assets are “qualifying plan assets.” Qualifying plan assets are participant loans or shares issues by a registered investment company. 
  2. The plan’s summary annual report must contain additional disclosures.
  3. If requested by a participant or beneficiary, the plan administrator makes available for examination, or upon request furnishes copies of, each regulated financial institution statement and evidence of any required bond.

There are more qualifying conditions, so it’s important to speak with a qualified CPA regarding your particular situation. 

Plans filing the Form 5500 as a large plan are generally required to have an annual audit. This is true even if the plan has, for example, 81 participants but has elected to file Form 5500 as a large plan under the 80 – 120 participant rule discussed above. 

Need assistance with your 401(k) plan audit or have other questions? Contact us or request a quote  – we’re here to help.