When does a 401(k) or other retirement plan require an annual audit?

The Employee Retirement Income Security Act of 1974 (ERISA) requires annual audits of plan financial statements by an independent qualified public accountant of plans subject to the provisions of ERISA. This requirement is applicable to plans with 100 or more eligible participants at the beginning of the plan year. Plans meeting this criteria would be considered to be a “large plan.”

Plans that are subject to ERISA are required to report certain information annually to federal government agencies, including the Department of Labor (DOL), the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC).

For many plans, the information is reported to the DOL on Form 5500, Annual Return/Report of Employee Benefit Plan, that includes financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and certain supplemental schedules.

Who are eligible participants?

An employee is eligible to participate in his or her employer’s retirement plan when he or she meets certain conditions stated in the plan document.

In a qualified plan, such as a profit sharing, 401(k) or defined benefit plan, generally employees would meet eligibility if they are:

• At least age 21
• Have at least 1 year of service

The employer must follow the eligibility rules in the plan document, which can be less restrictive than those listed above.

In a 403(b) plan, the “universal availability rule” is applicable which means if an employer permits one employee to defer salary in the plan, the employer must extend this offer to all employees of the organization.

The employer may exclude certain employees from the 403(b) plan:

• Employees who will contribute $200 or less annually