What is the Large Plan Audit Requirement

The Internal Revenue Service (IRS) Large Plan Audit requirement applies to a retirement plan when the company sponsoring the plan and/or companies participating in the plan has a certain number of eligible employees (regardless of whether all such employees are participating/contributing to the plan).

The Large Plan Audit requirement that generally comes into effect when you have 120 eligible employees (regardless of whether all such employees are participating/contributing to the plan).
  •  Any retirement plan with 120 or more eligible participants is generally required, except in a few limited situations, to include, with the Form 5500 filing, an independent audit report from a certified public accountant.  
  • The plan audit is a set of audited financial statements for the Plan, complete with an auditor's opinion, footnote disclosures and supplemental schedules required under ERISA. These financials will be attached to the Plan's Form 5500 filing.
  • A plan that should have an audit, that doesn't include an audit report with its Form 5500 filing, is treated as if the Plan didn't file the Form 5500, which tends to result in significant monetary penalties.
  • The auditors will determine the nature and scope of the audit, based on various factors. The auditors will review certain aspects relating to the financial health of the Plan, including:
    • Contributions to the Plan (amounts and timeliness of deposits);
    • Distributions and Participant Loans from the Plan;
    • Plan expenses;
    • Plan investments and income;
    • Participant data;
    • Any related party transactions.

The audit will generally not include a review of plan investments for prudence or service provider fee benchmarking. It will not address the overall fiduciary process or the prudence of the plan's design. An audit is simply a review of the financial health of the Plan and not a review of the service providers or the Plan as a whole.

Each year, LRS reviews the total number of eligible employees in your plan as of January 1st and notifies you if you may be subject to the requirement. Any retirement plan subject to the Large Plan Audit is required to include an independent audit report from a certified public accountant, with Form 5500. If the Large Plan Audit applies to your Plan, next steps may include:

1.    Secure a Certified Public Accountant/Firm that provides 401(k) Plan large plan audit services; or
2.    Request that Leading Retirement Solutions help you secure a CPA;
3.    LRS will coordinate with and work closely with you and the CPA firm to complete the large plan audit requirements;
4.    LRS will include the large plan audit report with your IRS Form 5500 filing.
5.    The large plan audit and Form 5500 must be filed no later than 7 months after the close of your plan year end (or 9 ½ months if IRS Form 5558 is filed requesting an extension). By way of example, if your plan year end is December 31, your filing deadline is July 31 and October 15th if on extension.  

The large plan audit will require considerable preparation time and expense. As the administrator of the plan, the employer needs to begin early in securing the audit service and assembling records for the audit. Additional information about the Large Plan Audit requirement can be found at: DOL: Selecting an Auditor for Your Employee Benefit Plan

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