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Posted by Admin Posted on May 31 2016

By John Gibbs, CPA

Vawter, Gammon, Norris & Company, PC

Am I required to have a 401k audit?  As the Plan Administrator of a retirement plan (401k), it is important to understand when a 401k audit is mandatory. 

While all qualified retirement plans must file Form 5500, only plans that are considered "large" plans need to submit an independent auditor’s report along with their Form 5500 filing.

So, what is considered a large plan?  It is solely dependent on the number of eligible participants  in the plan on the first day of the plan year.  Eligible participants are defined as those who have become eligible to participate, regardless of whether they have elected to participate.  It also includes retired, separated, or deceased participants who maintain an account balance in the plan.

In the Plan's inception year, if the number of eligible participants are 100 and greater, then it would be classified as a large plan and an audit would be required. If eligible participants are less than 100, it would be classified as a small plan and an audit would not required.

If you did not qualify as a large plan in the inception year, then in subsequent years the 80/120 rule applies.  This rule allows the plan to fluctuate between 80 and 120 eligible participants without changing the prior year's small plan classification; thus, not triggering an audit.  However, when eligible participants exceed 120, the plan would be considered a large plan and an audit would be required.

Once a plan has been classified as a large plan, then eligible participants must fall below 100 in order to revert back to a small plan status and not be required to undergo an audit.

If you have any questions on whether your retirement plan falls under the large plan or small plan category, please contact Bishop Norris or John Gibbs at