Understanding the latest 401k plan audit requirements is essential for every plan sponsor to ensure compliance and protect the account balance of every plan participant. These regulations, overseen by the Department of Labor (DOL) and the 401k plan audit requirements irs, are evolving rapidly with significant updates taking full effect in 2026. The primary factor determining whether an employee benefit plan audit is required is the participant count at the beginning of the plan year. Historically, this threshold was based on the number of eligible participants, but recent changes have simplified this for many small plan sponsors.
The Shift in Participant Count
For plan sponsors, the most significant recent change is how the participant count is calculated under the new 401k plan audit requirements. The SECURE Act 2.0 has clarified that the audit requirement is based on the number of participants with account balances on the day of the plan year.
Key Triggers for Audit Requirements
- Old Rule: Counted all eligible participants, even those who had not yet contributed.
- New Rule: Only counts plan participants who have an account balance in the plan.
- Threshold: If your retirement plans have 100 participants or more with an account balance, an audit is required.
The Critical 80/120 Rule for Plan Sponsors
The 80 and 120 rule is a crucial provision that offers flexibility to plan sponsors whose participant count hovers around the 100-participant mark. This rule allows a plan to file as a small plan, even if the participant count exceeds 100, provided it was considered a small plan in the prior plan year.
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| Number of Participants with Account Balances on the First Day of the Plan Year | Prior Year Form 5500 Filing | Audit Required? | Options for the Current Year Form 5500 |
|---|---|---|---|
| Less than 80 | Not applicable | No | Small Plan – Schedule I |
| 80 – 99 | Small Plan – Schedule I | No | Small Plan – Schedule I |
| 80 – 99 | Large Plan – Schedule H | Optional (May file as small plan) | Either Schedule H or I |
| 100 – 120 | Small Plan – Schedule I | Optional (May file as large plan) | Either Schedule H or I |
| 100 – 120 | Large Plan – Schedule H | Yes | Large Plan – Schedule H |
| More than 120 | Not applicable | Yes | Large Plan – Schedule H |
What is a 401k Plan Audit and Why is it Required?
When a plan is classified as a large plan, an employee benefit plan audit is mandated by the DOL to ensure the plan is operating correctly. This is a comprehensive review performed by an Independent Qualified Public Accountant (IQPA) to protect the interests of all plan participants.
The primary goal of the audit is to issue an audit report that provides an opinion on whether the plan’s financial statements are presented fairly. It also ensures the plan is in compliance with the Employee Retirement Income Security Act (ERISA) and 401k plan audit requirements irs guidelines.
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Key Components of a Large Plan Audit
- Participant Data: Verifying the accuracy of participant count, eligibility, enrollment, and termination dates.
- Contributions: Testing the timely remittance of employee and employer contributions to the 401 k plans.
- Distributions and Loans: Reviewing all distributions and participant loans for proper authorization and compliance.
- Investments: Confirming the valuation of plan assets and reviewing investment transactions within the retirement plans.
| Feature | Small Plan (Fewer than 100 Participants) | Large Plan (100 or More Participants) |
|---|---|---|
| Audit Required? | No (Unless 80/120 rule is not used and count exceeds 120) | Yes |
| Form 5500 Schedule | Schedule I | Schedule H |
| Required Attachments | Generally none | Independent Qualified Public Accountant’s audit report |
| Filing Deadline | Generally July 31st (7 months after plan year end) | Generally July 31st (7 months after plan year end) |
New 401k Plan Audit Requirements and 2026 Updates
The landscape of retirement plans is continually shaped by legislation, and 2026 is a year where many new 401k plan audit requirements will be fully integrated. The SECURE Act 2.0 has introduced several provisions that impact how large 401k plan audit requirements are handled by auditors.
SECURE 2.0’s Impact on Participant Count and Audits
The most significant impact on plan audit requirements comes from the change in how the participant count is determined. This shift, which bases the count on account balance, has allowed many plans to file as a small plan and avoid the employee benefit plan audit.
| SECURE 2.0 Provision | Impact on Plan Administration | Impact on Plan Audit Requirements |
|---|---|---|
| Participant Count Change | Simplifies the count to only include those with an account balance. | Reduces the number of plans that require a large 401k plan audit requirements engagement. |
| Automatic Enrollment (Effective 2025) | Requires new plans to automatically enroll eligible participants. | Auditors will test compliance with automatic enrollment and escalation provisions in 2026. |
| Long-Term, Part-Time Employees (LTPTE) | Reduces service requirement to two years by 2026, increasing the number of eligible participants. | Auditors will need to verify the tracking and inclusion of LTPTEs in the participant count. |
FAQs
Are 401k plans required to be audited?
An employee benefit plan audit is generally required if the plan is considered a large plan, which means it has 100 participants or more with an account balance. However, the 80 and 120 rule allows some plans with up to 120 participants to file as a small plan and avoid the audit requirement.
What is the new 401k audit rule?
The new 401k plan audit requirements stem from the SECURE Act 2.0, which changed the method for calculating the participant count. The count is now based on the number of participants with account balances at the beginning of the plan year, rather than counting all eligible participants.
How many participants to trigger a 401k audit?
An audit is required when a plan exceeds 100 participants with an account balance on the first day of the plan year. Specifically, if the participant count is over 120, the plan must file as a large plan and an employee benefit plan audit is mandatory.
What type of reporting is required for a 401(k) plan?
All 401 k plans must file the Form 5500, Annual Return/Report of Employee Benefit Plan, with the DOL and 401k plan audit requirements irs. Large plans must file Form 5500 with Schedule H and include an attached audit report from an IQPA, along with the plan’s financial statements.
Conclusion
Navigating the world of 401k plan audit requirements can be complex, but with the right knowledge, plan sponsors can ensure full compliance. The changes implemented through the SECURE Act 2.0, particularly the shift in participant count methodology, offer a welcome simplification for many small plan sponsors. By understanding the 80 and 120 rule and the specifics of large 401k plan audit requirements, you can confidently manage your plan’s obligations for 2026. For comprehensive and compliant filing, trust bestfiler to guide you through every step of the process.