The audit for a company 401(k) plan is another project and expense that many employers begrudgingly incur each year. In addition to the compliance testing and filing of the form 5500, plans with more than 100 eligible employees (deemed large plans) are required to hire an accountant to audit the plan. The plan audit is an extensive process and carries an annual cost of $7500 or more. Employers can choose to pay this expense from plan assets, but many employers get stuck with the bill.

In 2021, some form revisions were passed relating to the SECURE Act that could have an impact on some 20,000 audited plans across the country. These revisions took effect on January 1, 2023 and there aren’t many people talking about it. We want to thank our friend, Frank Eick, from Kronick Kalada Berdy & Co. for bringing this to our attention and sharing some resources with us. Frank and his firm are major players in the 401(k) audit business.

The major revision pertains to how plans are deemed large and require an audit. Prior to the revision, plans with 100 or more eligible employees require an audit. If your plan was fortunate enough to avoid an audit due to the 80/120 rule, then this may provide you with some more of a cushion. Under the new rules, plans with 100 or more participants with account balances require an audit. This is completely different. If your plan has low participation, this may very well impact you. For example, if your plan has 275 eligible participants and only 50 participant account balances, you may no longer be required to pay for a plan audit.

It is important to note that terminated account balances count. If your plan is close to the threshold, there may be an opportunity to reach out to terminated participants and encourage them to roll out their balances. Better yet, most recordkeepers allow you to have a provision where balances under a certain account balance (usually $5,000) can automatically be rolled out of the plan into an IRA with the recordkeeper.

This revision is expected to impact thousands of plans across the country. If you think your plan could be one of them, we recommend that you consult with a professional before taking any action. It can be a nice opportunity to save you and your plan some time and money.

Citations:

US Department of Labor

Disclosures