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401(k) Plan Audit: Requirements and Preparation

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What is a 401(k) plan audit?

A 401(k) plan audit is an independent review conducted by a certified public accountant to ensure the plan complies with Department of Labor (DOL) and Internal Revenue Service (IRS) regulations. The audit verifies that contributions, distributions, and plan administration are accurate and in compliance with legal requirements.

Does Betterment conduct 401(k) plan audits?

No, Betterment does not conduct 401(k) plan audits. Employers must engage a qualified, independent auditor to complete the audit. Betterment can provide a referral if needed.

When is a 401(k) plan audit required?

A 401(k) plan audit is required if the plan has 100 or more participants with account balances at the beginning of the plan year.

  • Large plans (100+ participants with balances) require an annual audit.
  • Small plans (fewer than 100 participants with balances) do not require an audit unless they were a large plan the prior year and do not have 80 or less participants.

What is the 80-120 participant rule?

If a plan has between 80 and 120 participants with balances, it can continue filing under the same status as the previous year:

  • If the plan previously filed as a small plan, it can continue filing as a small plan without an audit.
  • If the plan previously filed as a large plan, an audit is still required unless under 80 participants or as directed by your auditor/ERISA Counsel.

How to prepare for a 401(k) plan audit

Employers should gather key documents, including:

  1. Plan Documents
    • Executed plan document and any amendments
    • IRS determination or opinion letter
    • Summary Plan Description (SPD)
  2. Financial Records
    • Participant contribution reports
    • Payroll records
    • Plan asset statements
    • Investment allocation reports
  3. Plan Activity Reports
    • Distributions, loans, and fees reports
    • Compliance test results

How does Betterment support the audit process?

Betterment provides:

  • An audit package with financial reports and required documentation.
  • Delivery by May 31 for prior-year audit materials.
  • Support for audit inquiries to ensure a smooth process.

If the audit package is not received in time to file the Form 5500, Betterment offers up to $1,000 off the annual base fee as part of its Hassle-Free Compliance Guarantee.

Employers should ensure they engage a qualified independent auditor and review their plan’s participant count annually to determine if an audit is required.