Navigating 401(k) Plan Audits: What Employers Need to Know

Posted on Apr 10, 2025

A 401(k) plan audit can feel daunting, but with proper preparation and guidance, employers can ensure compliance and minimize risks. Understanding what triggers an audit, how to prepare, and the role of a Third-Party Administrator (TPA) in audit readiness can help businesses navigate the process smoothly.

What Triggers a 401(k) Plan Audit?

Several factors can trigger a 401(k) plan audit. The most common reasons include the following:

• Employee Threshold: The IRS and Department of Labor (DOL) generally require an audit of Form 5500 if a plan has 100 or more eligible participants.
• Late Contributions: Delays in depositing employee contributions can raise red flags.
• Noncompliance with Nondiscrimination Testing: Plans must pass annual tests to ensure fairness between highly compensated and non-highly compensated employees.
• Form 5500 Errors: Inaccurate or incomplete reporting on Form 5500 can prompt an audit.
• Employee Complaints: If a participant files a complaint with the DOL, an investigation may follow.

Preparing for an Audit

• Maintain Accurate Records: Keep thorough documentation of contributions, distributions, and compliance testing.
• Review Plan Operations: Ensure your plan adheres to its terms and all legal requirements.
• Conduct Internal Audits: Regular self-audits can help catch and correct issues before an external audit occurs.
• Ensure Timely Filings: File Form 5500 and other required documents correctly and on time.

How a TPA Can Help

A TPA plays a crucial role in keeping your 401(k) plan audit-ready. They assist with plan administration, ensure compliance with regulations, and provide documentation support. By working with a TPA, employers can reduce audit risks, streamline recordkeeping, and stay ahead of potential compliance issues. With proactive planning and expert support, navigating a 401(k) plan audit becomes a manageable process, protecting both the employer and employees’ retirement savings.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.