Does Your Organization Need a Retirement Plan Audit?

by Karlie Johnson, CPA

August 10, 2017 β€” Does your company have a retirement plan, such as a 401(k) or ESOP, and cover 100 or more participants?  If so, you’re required by law to have an annual audit of the plan completed and filed with the IRS and Department of Labor (DOL).  The annual audit, completed by a qualified and independent CPA firm, is required to be attached to the filing of the Form 5500 for retirement plans that meet the definition of a β€œlarge plan.”

A large plan is a retirement plan that includes over 100 eligible participants on the first day of the plan year. Eligible participants may be any of the following:

  • Active Participants – individuals who are currently employed at the Company and who are earning or retaining credited service under the plan, regardless of whether they elect to participate and defer money into the plan.
  • Retired or Separated Participants –individuals who are no longer working at the Company but who are receiving benefits under the plan; or former employee who have not yet withdrawn their funds from the plan.
  • Deceased Participants - individuals who have deceased and have one or more beneficiaries who are receiving or are entitled to receive benefits under the plan.

There are two exceptions to the large plan audit requirement:

  • β€œThe 80 to 120 Rule” – If the number of eligible participants is between 80 and 120, and a Form 5500 was filed in the prior plan year, the plan may elect to complete the current year’s Form 5500 in the same category (β€œlarge plan” or β€œsmall plan”) as was filed in the prior year.
  • β€œThe Short Plan Year Rule” – If the plan has a short year of seven months or less, the company may elect to defer the annual audit requirement to the following plan year.

The accurate determination of the number of eligible participants is critical, given that this number determines the need for an annual audit.

If you still have questions to determine if your retirement plan is subject to an annual audit, contact Karlie Johnson, CPA at

Karlie Johnson, CPA

Karlie Johnson, CPA

Karlie Johnson, CPA, is a director and leads the employee benefits service area. She assists with audited and reviewed financial statements in the manufacturing, construction, professional services, and distribution industries. Karlie specializes in employee benefit plan audits and helps business owners meet their fiduciary responsibility to hire an experienced plan auditor and avoid deficient plans that could cause tax disqualifications within their 401k audits. She also advises her clients regarding internal controls and external processes that help them clearly communicate their financial results. Karlie has provided public accounting services at Redpath and Company since 2005.