Is It Time To Audit Your Retirement Plan?
As your company grows, so does the number of your retirement plan participants. Once your participant count reaches the "magic number," your retirement plan is required to be audited. Are you wondering what your next steps should be?
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With Company Growth Comes Great Responsibility
Whether or not your plan is required to be audited will depend on your number of plan participants. While this may seem pretty straight forward, it's important to take a closer look at the word "participant." For plan audit purposes, "participant" not only includes those considered active within the plan, it also includes those who were terminated with a balance as well as anyone who might be eligible to participate, but who is not actively participating.
Small Plans
The only plans not required to undergo an audit are those that are considered "small plans." For yours to be considered a small plan, it must have fewer than 100 participants.
Large Plans
Plans with fewer than 100 participants are considered small plans, and therefore exempt from being audited, but plans with more than 100 participants at the beginning of the plan year should expect an audit to be required as part of the Form 5500 filing process.
80-120 Rule
Ahhh, but not so fast! There is one caveat if you are looking to buy yourself more time before the audit - the 80-120 rule. Per this rule, a plan with between 80 and 120 participants can continue to file Form 5500 in the same manner enjoyed the previous year, i.e. continuing as a "small plan" filer without the audit requirement. This extends the audit requirement line to 120 participants rather than the initial 100. However, once the 120 line has been crossed at the beginning of the plan year, an audit will be required annually until the participant count drops back below the "small plan" threshold of 100 participants.
If you would like to learn more how to identify retirement plan participants, what the retirement plan audit "magic number" is, and what to do once you hit that magic number, watch or listen to episode 120, "Is Your Retirement Plan Compliant," of Rea's award-winning podcast, unsuitable on Rea Radio, featuring Kim Veal, a leader on the firm's retirement plan audit services team.
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