401(k) Plan Audit Requirements
Each year, companies that administer 401(k) plans for 100 participants or more are required to hire an outside accountant to conduct an independent audit of their plan. The accountant's findings are recorded on a Form 5500 and filed with the Internal Revenue Service (IRS). The goal of the audit is to ensure that the 401(k) plan is administered equitably--that employees at all company levels have the same opportunity to participate--and to confirm that the plan is financially viable.
Deadline
Usually, plan administrators must file a completed Form 5500 by the last day of the seventh month following the end of the plan year (as opposed to the calendar year, if different). An employer who terminates a plan must also file a Form 5500 by the last day of the seventh month from the date the plan was terminated. The IRS does allow extensions: companies can submit a Form 5558 by the original Form 5500 due date to gain another 2.5 months.
Auditor Requirements
A 401(k) audit must be completed by an outside auditor licensed by the state's accountancy licensing body. The Department of Labor also recommends that accountants have experience auditing benefit plans. The auditor must be a disinterested party, meaning she cannot have any financial interest in either the 401(k) itself or the company that administers it. This way, she is not hindered from conducting a thorough audit.
Reporting Requirements
Administrators of 401(k) plans are responsible for providing auditors with the records they need to complete Form 5500. In the parlance of the form, a 401(k) is called a "large pension benefit plan," even though it is not a defined benefit plan.
As such, the IRS may require a company to submit Schedule A, which reports on any plan insurance; Schedule C if the 401(k) custodian was paid at least $5,000; Schedule D, which asks information about plan participants; Schedule E, which reports on employee stock ownership plans; Schedule G, concerning financial transaction tables; Schedule R for an explanation of retirement benefits; and Schedule SSA, which pertains to participants in deferred-benefit accounts.
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