When does a 401(k) plan need an audit?
A 401(k) plan needs an independent audit once it files Form 5500 as a large plan. Whether it does depends on how many participants with account balances it has at the start of the plan year, and on the 80-120 rule. This guide explains the rules and what they mean for audit firms looking for new engagements.
The 100-participant threshold
Under ERISA, a plan with 100 or more participants at the beginning of the plan year generally files Form 5500 as a large plan. Large plans attach Schedule H and the report of an independent qualified public accountant (IQPA) to the filing (29 CFR 2520.103-1). Plans with fewer than 100 participants file as small plans, usually on the short Form 5500-SF, and can generally rely on the small plan audit waiver (29 CFR 2520.104-46) if they meet its conditions.
Since 2023: only participants with account balances count
For plan years beginning on or after 1 January 2023, defined contribution plans such as 401(k) plans count only participants and beneficiaries who have an account balance at the beginning of the plan year. Eligible employees who never deferred no longer push a plan over the threshold. The change moved many plans back below 100 and is why the count of participants with account balances on Form 5500-SF is the number to watch.
The 80-120 rule
A plan with between 80 and 120 participants at the beginning of the plan year may file in the same category it used the year before (29 CFR 2520.103-1(d)). For a growing plan that filed as a small plan, this means:
- At 100 to 120 participants it can keep filing as a small plan, without an audit.
- Once it starts a plan year with 121 or more participants with account balances, it must file as a large plan, and that year is its first audited year.
Because the count at the start of a year equals the count at the end of the previous year, the trigger is visible one year in advance: a plan that reports 121 or more participants with balances at the end of 2025 on its Form 5500-SF will generally need an audit for plan year 2026.
Deadlines for the first audited Form 5500
| Plan year | Form 5500 due | With Form 5558 |
|---|---|---|
| Calendar year 2026 | 31 July 2027 | 15 October 2027 |
| Fiscal year ending 30 June 2026 | 31 January 2027 | 15 April 2027 |
The filing is due by the last day of the seventh month after the plan year ends; Form 5558 extends it by two and a half months. Most sponsors engage their auditor after the plan year closes, which leaves audit firms a window of several months to be considered.
What the first audit involves
The first audit covers the current plan year, and the auditor also needs the opening balances. Many first-year plans qualify for an ERISA section 103(a)(3)(C) audit, formerly called a limited-scope audit, when assets are held by a qualified institution that certifies the investment information. Sponsors often learn about the requirement from their recordkeeper or third-party administrator, who also tends to recommend an auditor.
Why the 80-120 rule makes first audits predictable
Every Form 5500-SF is public. Combining the participant count at year-end with the filing category gives a list of plans that are about to cross the line. In our back-test on plan year 2023, 81% of the plans flagged this way filed an audited Form 5500 for the following year; 5% stayed on the short form and the rest were terminated, merged or filed late.
This guide summarizes public rules for orientation. It is not legal, tax or audit advice; check the current DOL instructions for Form 5500 for your situation.