How to Prepare for Your 401(k) Plan Audit
If your company’s 401(k) plan meets the threshold for a mandatory audit, preparation is key to ensuring a smooth and stress-free process. A 401(k) plan audit is not just a regulatory obligation it’s also an opportunity to strengthen your plan’s operations, uncover risks, and build trust with employees and regulators.
In this guide, we’ll walk you through how to prepare effectively for your 401(k) plan audit.
1. Understand If You Need an Audit
Before you prepare, confirm whether your plan actually requires an audit:
- 100-participant threshold: Only participants with account balances are counted (as of the 2023 rule update).
- 80/120 Rule: If your plan filed as a small plan last year and now has fewer than 121 participants, you may still qualify as a small plan.
If your plan qualifies as a “large plan,” an independent audit is required and must accompany your Form 5500 filing.
2. Select a Qualified Auditor Early
Start early by hiring an independent CPA who specializes in employee benefit plan audits. Besides, make sure that 401k audit cost is reasonable and no suprises. Look for:
- Experience with ERISA and DOL requirements
- Familiarity with 401(k) recordkeeping systems
- A clear timeline and scope of work
The auditor will need full access to financial statements, plan documents, and administrative processes.
3. Gather Your Documentation
Proper documentation is the foundation of a smooth audit. Be ready to provide:
- Plan Document & Amendments
- Summary Plan Description (SPD)
- Annual Form 5500 and schedules
- Participant census data
- Payroll records showing contributions
- Trust statements and investment reports
- Loan and distribution records
- Fidelity bond certificate
Your auditor may also request specific transactions, such as hardship withdrawals, loans, or rollovers.
4. Reconcile Data Before the Audit Starts
Before the audit begins, perform internal reconciliations:
- Match payroll contribution records with trustee deposits
- Confirm timely remittance of employee contributions
- Ensure participant loan repayments are current and consistent with loan agreements
- Check that employer match calculations are accurate
This proactive step can reduce back-and-forth with the auditor and avoid delays.
5. Review Internal Controls
Auditors will assess your internal controls — how your company handles:
- Enrollment and eligibility tracking
- Contribution processing and approvals
- Plan distributions and loans
- Error correction procedures
Make sure your processes are documented and staff are trained. If you’ve had any operational issues or corrections (like a late deposit or match miscalculation), be upfront — transparency builds trust.
6. Communicate with Service Providers
Your recordkeeper, third-party administrator (TPA), and investment platform may need to provide data and reports directly to the auditor. Let them know an audit is coming, and confirm who the point of contact will be. Coordination is critical.
7. Stick to the Timeline
The Form 5500 filing deadline for calendar-year plans is July 31, with a possible extension to October 15. Your auditor will need time to complete their fieldwork, issue the audit report, and attach it to your filing. Start preparing at least 90 days in advance, if not sooner. Preparing for a 401(k) plan audit doesn’t have to be overwhelming — with the right preparation, it becomes a manageable and even valuable process. By organizing your records, communicating with stakeholders, and proactively identifying issues, you can ensure that your audit goes smoothly and reflects well on your company’s compliance and fiduciary responsibility.