How to navigate your 401(k) plan audit

This guide shares the steps and timeline you can expect if your plan requires a plan audit.

Updated over a week ago

A plan audit is required when an existing plan has 100 or more participants (both terminated and currently employed) with an account balance on the first day of the plan year (January 1 for all Guideline plans except certain new plans with a mid-year start date). For brand new plans, the audit requirement is based on the number of participants with a balance on the last day of the plan year. This is because participants would not have a balance when a plan first begins.

The purpose of the audit is to help ensure that the plan is operated according to the terms of the plan document and that it meets requirements set by the Internal Revenue Service (IRS) and Department of Labor (DOL).

A plan audit must be completed by an independent public accounting firm, which you are responsible for hiring. Failing to provide a completed audit by the Form 5500 filing deadline may result in substantial penalties and other negative consequences.

However, there is an exception to the 100 participant count (the 80-120 Participant Rule). This exception allows waiver of the audit if your company filed a 5500-Short Form (SF) the previous plan year and the participant count does not exceed 120 at the beginning of the subsequent plan year.

If you are required to have an audit complete, this guide shares steps and helpful information to assist you.

Plan audit timeline

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Step 1: Engage with an auditor

If you require a plan audit, you will need to engage a third-party auditor before March 31 to ensure you can timely file your Form 5500. We recommend engaging as soon as possible so you are able to get on the auditor’s schedule.

You may engage with an auditor of your choosing. However, below are a few audit firms that other Guideline clients have used. These auditors are familiar with Guideline reports.*

It is important for your company to perform due diligence on your chosen auditor to confirm that it is a qualified independent public accounting firm. Critical considerations in selecting your auditor include, but are not limited to:

  • Experience performing employee benefit plan audits

  • Conflicts of interest

  • Capacity to meet the filing deadline

  • Pricing

Failing to engage with an auditor will result in your Form 5500 not being filed. If a Form 5500 is not filed by the deadline, the company may be subject to substantial IRS and DOL penalties.

The DOL penalty for failure to timely file the Form 5500 is up to $2,586 per day for each day that the return is late, with no maximum. In addition, the IRS imposes a penalty of $250 per day for each day the return is late, up to a maximum of $150,000 per plan year. Please see the DOL and IRS websites for a description of potential penalties and programs available to fix late or delinquent filings.

Step 2: Complete the “Form 5500 Audit Task” on your Guideline dashboard

Once you engage with an auditor, you must provide us with the audit firm’s information by completing the Form 5500 audit task on your dashboard. Once received, we can provide them with the audit package, which is designed to cover all the information needed for the plan audit. Please note that any requests for custom reports could result in additional fees.

Audit packages are typically sent to auditors between March 31 and April 30. However, we cannot do this until you complete the task on your dashboard. You will get weekly reminders until your audit task is complete.

During the audit process, Guideline will be in regular contact with your auditor. They will likely request information from you and Guideline. We will respond to requests and questions as quickly as possible so the audit stays on track. We also recommend you respond as quickly as possible. A typical audit takes about 6-8 weeks to complete if the audit stays on track.

Not all plans have the compensation collection task, however, if you do it is important that you complete this timely. Your auditor may want to review your plan’s compliance testing and it cannot be completed until your compensation collection task has been completed. Not completing this task could result in delays in your audit.

Step 3: Sign the representation letter from your audit firm

You will need to sign the letter provided by your audit firm in order for the auditor to release the final financials, which are required to file your Form 5500.

Step 4: Ensure Guideline receives a copy of the audit report

Once your auditor has completed their work, they will prepare a report that includes financial statements and an auditor opinion. That report must be attached to the Form 5500 when it’s filed. Some auditors will provide us a copy of the audit report directly but some do not. Once your audit is complete, please be sure Guideline receives a copy so that we can attach it to the Form 5500. Please understand that until Guideline receives the auditor’s report, the Form 5500 can not be filed.

Guideline will send follow up emails requesting the final financials if we have not received them from your auditor as we approach the extended filing deadline (October 15). The Form 5500 cannot be filed without the final financials, and you will be responsible for the late filing penalty if not completed on time.

Audit FAQ

How do I confirm the number of participants with a balance?

Because the number of participants with a balance in your plan is what dictates whether you’ll need an audit, you may wish to confirm that our records match the accurate number of participants.

If you’d like to receive a “Participant Count Report,” email You can then let us know if you believe there are inconsistencies that should be reported.

What is my responsibility during the Form 5500 audit?

You are responsible for hiring a third-party auditor, having your payroll register and other documentation ready to share, and responding to inquiries from your auditor or Guideline as quickly as possible. Additionally, your auditor will want to review your annual compliance testing. Therefore, if you have a compensation task to complete on your Guideline dashboard, please be sure to handle that task timely.

Before the auditor issues the audit report (which must be attached to the Form 5500), the final step is to sign a representation letter from your auditor. If your audit is being completed close to the October 15 filing deadline, you must be available to sign that letter so the auditor can issue their report on time.

How much will the audit cost?

Your auditor will be able to provide you with an estimated cost, as the price depends on different factors, including business size and audit type. According to some sources, an annual audit cost can range from $8,000-$15,000.

What if my audit won’t be complete before the July 31 deadline?

If your audit will not be completed before July 31, Guideline will automatically file a Form 5558 extension at no additional cost. This will extend your deadline to October 15.

Will I need to do anything to file my Form 5500?

Please be sure Guideline receives a copy of the audit report prepared by your auditor so we can attach it to the Form 5500 prior to filing with the Department of Labor.

If Guideline is the Plan's 3(16) Fiduciary, Guideline will file and sign the 5500. If Guideline is not the Plan's 3(16) Fiduciary (typically in the case of self-service plans), you’ll need to complete a signature task on your dashboard. Until the signature task is completed, your Form 5500 will not be filed.

What other forms may be required for my plan?

Your plan may require a Form 8955-SSA or a Form 5330. If your plan requires either form according to our record, you will be notified. An explanation of each of these forms can be found below in the “Forms FAQ” below.

Does my plan have an ERISA Fidelity Bond?

Guideline maintains an ERISA bond covering your plan, which provides protection in the event of a claim of lost plan assets due to fraudulent or dishonest acts by Guideline, our employees, or our agents. However, since the bond Guideline maintains does not cover any employees of your organization, you should consult your legal counsel to determine whether other individuals who may be managing your plan funds will need additional bonding. Learn more about insurance and ERISA bonding here.

What do I do if I get a letter from the IRS or DOL?

Please forward a copy of the letter to so we can better assist you.

Forms FAQ

What is a Form 5558?

Form 5558 is used to apply for an extension to file the Form 5500 series (Form 5500, Form 5500-SF and/or Form 8955-SSA). Guideline will file Form 5558 automatically if it appears that we will not be able to file your Form 5500 by the initial deadline of July 31.

What is a Form 8955-SSA?

The Form 8955-SSA is a Social Security Administration form used to report employees who no longer work for your company but still have an account balance under your plan. The form is also used to report when terminated employees who were reported on a prior Form 8955-SSA have moved all of their money out of the plan.

Former employees that still have not moved money out of their account will be notified by the Social Security Administration based on Form 8955-SSA information once they apply for Social Security benefits. This is called a potential private benefit information notice.

What is a Form 5330?

A Form 5330 is required for a number of reasons but the two reasons supported by Guideline are:

  • When employee deferrals and loan payments are not deposited into the plan on a timely basis (late deposits);

  • If a failed ADP or ACP test is corrected by distributing excess deferrals after March 15 for automatic contribution arrangement (ACA) plans or after June 30 for eligible automatic contribution arrangement (EACA) and qualified automatic contribution arrangement (QACA) plans.

Note that Guideline does not file a 5330 for other reasons that may apply to your plan, including exceeding the deduction limit under Code section 404(a).

For additional information on the different forms, please visit the DOL website.

*The auditors listed are independent third parties and Guideline makes no representations as to the providers’ qualifications or suitability. In providing this list, Guideline is not acting in a fiduciary capacity or providing investment advice.

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