401(k) audits help ensure that retirement plans comply with regulations. They are performed by independent auditors and reviewed by the Department of Labor. Audits are typically due within 7 months after the plan year ends, but some complexities may affect the timing. Plans with over 100 participants must file an audit within this timeframe. Extensions may be granted for plans with under 100 participants, but they must be requested within the original 7-month period. If an audit is not filed on time, the plan may face penalties or other consequences.
Audit Deadline for Form 5500
401(k) audits are due based on the plan year end. The plan year is typically the calendar year, but it can be any 12-month period.
The audit deadline for Form 5500 is 7 months after the plan year ends. For example, if the plan year ends on December 31, 2023, the audit deadline would be July 31, 2024.
There are some exceptions to the 7-month deadline. For example, if the plan is a small plan with fewer than 100 participants, the audit deadline is extended to 10 months after the plan year ends. Additionally, if the plan is a defined benefit plan, the audit deadline is extended to 9 months after the plan year ends.
The following table summarizes the audit deadlines for Form 5500:
| Plan Type | Audit Deadline |
|---|---|
| Small plan with fewer than 100 participants | 10 months after the plan year ends |
| Defined benefit plan | 9 months after the plan year ends |
| All other plans | 7 months after the plan year ends |
It is important to note that the audit deadline is a hard deadline. If the audit is not completed by the deadline, the plan sponsor may be subject to penalties.
When Are 401k Audits Due
401(k) audits are mandatory reviews of employer-sponsored retirement plans conducted by the Department of Labor (DOL) to ensure compliance with federal regulations. The frequency of audits varies depending on the size and complexity of the plan.
Department of Labor Enforcement Audit
The DOL conducts audits to enforce compliance with the Employee Retirement Income Security Act (ERISA). Audits typically cover plan administration, investments, and compliance with plan documents. Employers must provide the DOL with requested documents and information within specific timeframes.
- Small Plans (under 100 participants): Audited every 3 years
- Mid-Size Plans (100-999 participants): Audited every 2 years
- Large Plans (1,000+ participants): Audited annually
| Plan Size | Audit Frequency |
|---|---|
| Small Plans (<100 participants) | Every 3 years |
| Mid-Size Plans (100-999 participants) | Every 2 years |
| Large Plans (1,000+ participants) | Annually |
Internal Revenue Service Examination
The Internal Revenue Service (IRS) may audit a 401(k) plan at any time. However, the IRS is more likely to audit a plan if it has:
- Assets of $50 million or more
- More than 100 participants
- Been amended or terminated within the past six years
- Had a high rate of employee turnover
- Made loans to participants or beneficiaries
When the IRS audits a 401(k) plan, it will examine the plan’s documents, records, and operations. The IRS will also interview plan officials and participants. The IRS will use this information to determine whether the plan is in compliance with the Internal Revenue Code.
If the IRS finds that the plan is not in compliance, it may issue a Notice of Deficiency. The Notice of Deficiency will explain the deficiencies in the plan and the amount of tax that is owed. The plan sponsor may appeal the Notice of Deficiency to the Tax Court.
If the IRS does not find any deficiencies in the plan, it will issue a Closing Letter. The Closing Letter will state that the IRS has completed its audit and that no further action is required.
| Audit | Due Date |
|---|---|
| IRS Examination | Any time |
When Are 401k Audits Due
401k audits are required by the Employee Retirement Income Security Act (ERISA) to ensure that plans are operated in accordance with the law and that participants’ accounts are properly managed. The timing of 401k audits depends on the type of plan and the number of participants.
Participant Directed Individual Account Audit
Participant directed individual account (PDIA) plans are subject to an annual audit if they have more than 100 participants.
- For PDIA plans with 101 to 120 participants, the audit is due 120 days after the end of the plan year.
- For PDIA plans with more than 120 participants, the audit is due 150 days after the end of the plan year.
The following table summarizes the due dates for 401k audits for PDIA plans:
| Number of Participants | Due Date |
|---|---|
| 101 to 120 | 120 days after the end of the plan year |
| More than 120 | 150 days after the end of the plan year |
Hey, thanks for sticking with me through this 401k auditing journey! I know it can be a bit dry, but I hope you got the gist of it. Just remember, the due date for your 401k plan’s annual financial statement (Form 5500) is typically nine months after the end of your plan’s year. If you’re not sure when that is, just give the friendly IRS a holler at (800) 909-5854. And if you’ve got any more 401k questions rattling around in that beautiful mind of yours, don’t be shy! Swing back here and we’ll sort it out together. Until next time, stay financially savvy!