Understanding Retirement Plan Audits
Retirement plan audits are a crucial aspect of maintaining compliance and demonstrating fiduciary responsibility. Knowing when audited financial statements are required for a retirement plan’s Form 5500 can help plan sponsors avoid costly fines and ensure proper management of their plans.
When Is an Audit Required?
Retirement plans are required to include an audit with their Form 5500 filing if they are classified as a large plan. This designation applies to plans with 100 or more participants with account balances on the first day of the plan year, starting January 1, 2023. For newly established plans, this determination is based on participant counts at the end of the plan year.
Using the 80-120 Rule
Plans with participant counts between 80 and 120 can file in the same category as the prior year under the 80-120 rule. For example, a plan classified as a small plan in the previous year can remain in the small plan category, even with slightly increased participant counts, as long as they stay under 120 participants.
Audit Requirements for Small Plans
Plans with fewer than 100 participants are considered small plans and are not required to undergo audits. However, they must still comply with ERISA regulations and may benefit from simplified reporting options.
Small plans may file simpler forms such as:
- Form 5500-SF (short form)
- Form 5500-EZ, if specific criteria are met, such as being fully invested in eligible assets.
Small plans also benefit from a seven-day safe harbor rule for remitting participant contributions, while large plans must deposit funds as soon as administratively feasible.
Ensuring Compliance
Plan administrators should review their prior year’s Form 5500 participant counts to determine whether an audit is required. Proper preparation ensures compliance with audit requirements and avoids penalties.
For small plans, taking advantage of simplified filing options and safe harbor provisions can reduce administrative burdens. Large plans, on the other hand, should prioritize timely deposits and accurate recordkeeping to meet stricter compliance standards.
Retirement plan audits are an essential part of demonstrating fiduciary responsibility and ensuring regulatory compliance. By understanding the requirements for Form 5500 filings, plan sponsors can effectively manage their obligations and avoid potential penalties.
