Does Your Company Need a 401(k) Audit? What to Know and How to Prepare

For many businesses, summer is prime time for a 401(k) audit. The bulk of this work happens between May and September, so if your plan includes an audit requirement, now is the time to get your documentation in order. A little preparation now goes a long way toward a smoother process later.

Does Your Business Need a 401(k) Audit?

Not every company with a retirement plan is required to have it audited. The general rule is that if your 401(k) plan has more than 100 participants with account balances, a 401(k) audit is required.

That said, there’s some built-in flexibility. The Department of Labor allows companies operating in the 80 to 120 participant range to maintain their current filing status rather than triggering an automatic audit when they cross the 100-person threshold. This is designed to protect businesses from paying for an audit only to drop back below the threshold the next year.

In practice, if you’ve crossed 100 participants, the number to watch is 120 — that’s when an audit becomes unavoidable. On the other end, if your headcount is trending down and you expect to fall below 80, you may be able to move out of the audit requirement altogether. If you’re unsure where you fall, it’s worth a conversation with your CPA before summer arrives.

What Do Auditors Need for a 401(k) Audit?

Once you’ve confirmed an audit is required, the goal is to have your documentation complete and accessible. Here’s what auditors will typically need:

Year-end employee census

Make sure it reconciles with your payroll records. Discrepancies here can significantly slow things down.

Completed testing

401(k) plans are subject to discrimination tests and highly compensated employee tests. If those apply to your plan, confirm they’ve been completed and passed.

Payroll records for the full plan year 

Payroll records should be readily available and organized.

Third-party administrator access

Auditors will need to pull trust reports and other documentation directly from your plan administrator, so make sure access is granted in advance.

Employee file documentation

Dates of birth, dates of hire, and pay rates should all be accurately documented in employee files.

Profit-sharing contribution calculations

Any contributions that haven’t yet been funded need to be properly calculated and accrued so they’re reflected accurately in the plan’s financials.

Getting all of this organized before the audit begins, rather than pulling it together on the fly, makes the entire process faster and less disruptive for your team.

Prepare Your Team Before the Audit Starts

One of the most overlooked parts of 401(k) audit preparation is internal coordination. Auditors will need information from multiple people across your organization, including HR, payroll, finance, and potentially your CFO or Controller, as well as scheduling matters. Make sure everyone involved knows when the audit is happening and has time blocked to respond to requests promptly. Auditors working around a payroll processing week or a key HR deadline adds friction that’s easy to avoid with a little planning.

Clear communication across departments before the audit begins keeps things moving efficiently and reduces the back-and-forth that often extends timelines. Designate a point person to project manage the audit, ensuring deadlines are met, and communication flows as smoothly as possible between the auditors and your employees.

CJG Partners Can Help with 401(k) Audits

401(k) audits are a significant part of CJG’s assurance work each year. If your plan is approaching the audit threshold, or you already know you’ll need one this summer, we can help you understand your requirements and ensure you’re prepared. Reach out to our team today to get ahead of it.