If your 401(k) plan is growing, you may be approaching a point where an audit is required—often for the first time. 

For many plan administrators, this moment doesn’t come with clear guidance. Instead, it raises immediate questions: Do we really need an audit? What triggers it? And what happens next? 

The biggest challenge, for many first-time audits, is knowing where to start. The first step is understanding what’s required so you can move forward without unnecessary stress. 

This guide is designed to walk you through those answers—so you can understand your requirements, avoid unnecessary work, and move forward with confidence. 

When Is a 401(k) Audit Required? 

A large plan has 100 or more active participants while a small plan will have less than 100 active participants.   

However, the rules are not always that simple. 

The 100–120 Participant Rule 

When you add all active participants up, the number to keep in mind is 120. 

If your plan did not require an audit in the prior year but now has 120 active participants, your plan will be considered a large plan and will require an external audit. 

However, due to the “80–120 rule,” a plan that filed as a small plan in the prior year and has fewer than 120 active participants may continue to file as a small plan. Once the number reaches 121 active participants at the start of the plan year, the plan must file as a large plan, requiring an audit.   

What Is an Eligible Participant? 

An eligible participant includes: 

• Former employees with account balances 

• Current employees who actively participate or may have stopped actively participating but still have an account balance 

• Plan beneficiaries (for deceased employees) who are receiving distributions or have an account balance 

• Basically you should count the number of participants that have a current balance in the Plan as of the first day of the Plan year. 

Why This Matters 

If your participant count is close to the threshold, it is worth verifying the calculation before assuming an audit is required. Small differences in how participants are counted can change whether an audit is necessary. 

Review your employee count with your service provider and double-check the calculation, especially if you are near the 100-participant level. If the count comes out to 100 or 101, you’ll want to make sure participants weren’t included that shouldn’t have been. 

What Triggers Your First Audit? 

For most companies, the first audit isn’t triggered by a single event—it’s the result of gradual growth. Your plan recordkeeper will typically be the one to inform you when your plan is ready to be audited. 

The threshold for a 401(k) audit is 100 or more active participants as of the first day of the plan year. Even if participant counts change later in the year, the count as of the first day of the plan year determines whether an audit is required. This is why timing and accurate recordkeeping matter—your obligation is based on a fixed point in time, not ongoing changes. 

If your internal counts differ from your third-party administrator’s numbers, verify and correct them before determining if your Plan qualifies as a Small Plan for filing the Form 5500. This could mean you don’t need an audit at all. 

Note: In some cases, even terminated plans may still require an audit depending on remaining assets and terminated 401(k) plan audit requirements. 

When Is a 401(k) Audit Due? 

For calendar year plans, the Form 5500 filing deadline is the end of July. You may request an extension to October 15, but the original deadline remains the end of July. 

The audit must be completed before filing Form 5500, as the audit report is included with the filing and audit procedures require a review of the draft Form 5500 as part of the audit. 

What This Means in Practice 

Your 401(k) audit timeline is not separate from your filing timeline—they are directly connected, and delays in one will impact the other. 

Discuss timing early with your auditor, respond quickly to document requests, and coordinate with service providers to avoid delays. A smooth and timely 401(k) audit requires preparation, communication, and early action. 

What Happens During a 401(k) Audit? 

A 401(k) audit is a detailed review of your plan’s financial statements, participant activity and compliance with regulatory requirements. 

Unlike traditional financial audits, 401(k) audits are compliance-focused—they are designed to confirm that your plan is operating according to your Plan governing documents, federal regulations and IRS and Department of Labor rules. 

Auditors will review: 

• Plan documents and amendments 

• Financial statements 

• Plan risks and controls 

• Contribution data 

• Distribution data 

• Payroll and HR data for selected participants 

• Participant loan data  

• Information related to investment transactions including income allocation 

• Compliance items such as disclosures and discrimination testing 

• Form 5500 data 

They will also evaluate both financial accuracy and compliance with regulatory requirements. 

If you’re preparing for your first audit, working with a provider that offers specialized 401(k) audit services can help ensure the process runs efficiently and stays compliant. 

What to Expect (First-Time Audit) 

Your first audit will typically require more time, coordination, and documentation than future audits. 

The auditor will request documentation, review transactions, and test samples to ensure the plan is operating correctly. Over time, future audits typically become more efficient as prior work and documentation are available. 

How Much Does a 401(k) Audit Cost? 

If you have never had an audit before, one of the first questions is: how much will this cost? 

Many first-time plan administrators are surprised by the 401(k) audit cost. 

What Drives Audit Cost? 

Audit pricing is driven by: 

• The amount of work required 

• The complexity of the plan 

• Compliance and regulatory requirements 

For a first-time audit, the level of effort is often higher because systems, documentation, and processes have not yet been tested. 

Why Audits Cost More Than Expected 

Auditors are required to test not only what happened, but what should have happened, which explains why audits cost more than expected. 

Because audits are subject to regulatory review and potential legal risk, documentation and testing must be extremely thorough. Specialized training, detailed procedures, and multiple levels of review all contribute to the overall cost. 

How to Choose a 401(k) Auditor 

The Department of Labor ultimately holds the plan sponsor—not the auditor—responsible for a timely and complete audit, which makes selecting a qualified 401(k) auditor critical to avoiding compliance issues. 401(k) audits are compliance-focused and differ from traditional financial statement audits.  

Ask whether the firm participates in the AICPA’s Employee Benefit Plan Audit Quality Center, which can indicate a higher level of specialization and ongoing training.  

Questions to Ask 

• How many benefit plan audits does the firm perform each year? 

• What experience does the team have with plans like yours? 

• What training do staff receive on benefit plan audits? 

• Who will be working on our audit, and what is their experience with benefit plans? 

• How long will the audit take? 

• Do you have the capacity to complete our audit within the required timeline?  

• Is your firm licensed in the state where our Form 5500 will be filed? 

When and How to Start the Selection Process 

If you’ve just found out you need a 401(k) audit, begin the selection process as early as possible. Firms often fill their schedules quickly, especially as deadlines approach, and waiting too long can limit your options or impact your ability to complete the audit on time. 

You can start by: 

• Asking colleagues or internal stakeholders for a recommendation of an audit firm they have worked with before 

• Reaching out to audit firms you already work with 

• Getting referrals from trusted advisors that work with your Plan 

• Searching online to build a shortlist 

Starting early gives you more flexibility to choose a firm that fits your timeline, your plan complexity, and your working style. 

What to Prioritize When Selecting a 401(k) Auditor 

Start by understanding how the audit will be staffed and managed. Many organizations prefer not to train new audit staff each year, so consistency and experience of the team performing the work can make a meaningful difference. 

Also make sure you’re clear on how the auditor will communicate, request information, and manage the process—since your team will be closely involved throughout the audit. You may also want to ascertain whether the audit will be conducted remotely or on-site, and how documents will be shared securely, as this can affect coordination and timing throughout the process. 

Before entering into an engagement, it’s also important to understand how the audit will be priced. Some firms use fixed-fee pricing, while others bill hourly or provide estimates that can change based on what is uncovered during the audit. Clarity around pricing structure can help avoid unexpected 401(k) audit costs and ensure you understand how additional work will be handled. 

However, choosing an auditor based on price alone can create risk—401(k) audits themselves are subject to review, and incomplete work can lead to additional cost and rework. While cost is important, experience and specialization are critical to ensuring your audit is completed accurately and on time. 

Plan Early for a Successful 401(k) Audit

If you’re approaching the audit threshold or preparing for your first audit, you can request a 401(k) audit consultation to get clarity on requirements, timing, and next steps.