ERISA 401(k) plan audit: definition and audit meaning

Definition

ERISA Section 103 requires the administrator of most employee benefit plans to engage an independent qualified public accountant to audit the plan's financial statements and attach the report to Form 5500. In general, plans with 100 or more participants at the start of the plan year file as large plans and need the audit. For plan years beginning on or after January 1, 2023, a defined contribution plan counts only participants with account balances. AU-C 703 governs the engagement.

Why it matters in an audit or review

The auditor tests participant contributions, eligibility and compliance with the plan document, investments and their valuation, benefit payments, participant loans, and timely remittance of deferrals. Late deposits of participant contributions and testing of plan operation against the document are frequent findings. A plan may be eligible for the 80-120 participant rule to remain in the prior-year filing category.

Example

Illustrative: the auditor selects 25 payroll periods, recomputes employee deferrals from payroll records, and compares the dates deposited to the trust with the dates withheld. Deposits made later than the DOL standard, which is as soon as the amounts can reasonably be segregated from the employer's general assets (29 CFR 2510.3-102), are reported to the plan administrator.

Common mistakes

Counting all eligible employees instead of participants with balances, for plan years where the newer rule applies.

FAQ

Can a plan with fewer than 100 participants skip the audit?

Generally yes, if the plan meets the conditions for the small plan audit waiver (29 CFR 2520.104-46).

Sources

ERISA section 103(a)(3), 29 U.S.C. 1023(a)(3), audit by an independent qualified public accountant
29 CFR 2520.104-46, waiver of examination and report of an independent qualified public accountant for small plans
DOL, EBSA, Instructions for Form 5500 (who must file as a large plan; participant counting for defined contribution plans for plan years beginning on or after January 1, 2023; 80-120 participant rule)
AICPA, AU-C Section 703, Performing and Reporting on an Audit of Employee Benefit Plans Subject to ERISA

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

An ERISA 103(a)(3)(C) audit, formerly called a limited-scope audit, lets the administrator instruct the auditor not to audit investment information certified by a qualified institution such as a bank or insurer.

Form 5500

Form 5500 is the annual return and report that employee benefit plans file with the DOL, IRS, and PBGC, and for large plans it must include the independent auditor's report on the plan financial statements.

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ERISA 401(k) plan audit