An audit is one of the checks and balances for an employee benefit plan that will help ensure that your company’s benefit plan is meeting all legal and tax requirements. An audit also helps protect your plan’s assets, including funds for health and retirement benefits. But do all employee benefit plans need to be audited? Keep reading to find out the answer to this important question.
When it comes to employee benefit plan audits, size matters
An employee benefit plan audit can always be beneficial. But when is an audit required by law? The deciding factor that determines whether you are legally required to get an audit of your employee benefit plan is the size of the plan — that is, the number of plan participants. Generally, plans with 100 or more active participants are required to undergo an annual audit, while plans with fewer than 100 participants are not required to get an audit.
An exception to the rule
There is, however, an exception to the “100 participants” rule described above. The “80-120 Rule” specifies that if a plan fit the category of a “small” plan in the prior year (fewer than 100 participants), it can also be considered a small plan this year, as long as it has grown to no more than 120 participants.
So, if your plan had 80 participants at the start of the year and now has 120, you don’t have to get an audit this year. In fact, you can continue to file as a small plan for as many years as your plan stays at 120 or fewer participants (as long as you filed as a “small” plan for the previous year).
Does the entire plan need to be audited?
Your plan may be eligible for a “limited scope audit,” in which only certain parts of the plan are audited. Specifically, the investment information can be excluded from the audit if the proper documentation is provided by the bank/institution holding the plan’s assets, certifying the investment information as being “complete and accurate.” (This audit limitation only applies to investment information and does not apply to other parts of the plan).
What are your employee benefit plan’s auditing needs?
If you are the administrator of a large employee benefit plan, an annual audit of the plan is part a legal requirement as part of your obligation to file an annual Form 5500 tax return/report. However, your plan may be eligible for a limited scope audit, or you may not need an audit at all if your plan meets certain requirements.
If you know your plan has more than 100-120 participants, you will definitely need an audit and it is a good idea to look over the U.S. Department of Labor’s resource on how to select an auditor for your employee benefit plan.
If you’re not sure if your plan is required to have an audit, or you want to find out if you’re eligible for a limited scope audit, contact us anytime to let us help you determine this information. Of course, we are also highly qualified to perform such audits if we determine that you do require one.