By : Scott M. Cloud, MBA, CPC

Retirement plan laws require that a company-sponsored retirement plan be subject to an annual audit if it satisfies the definition of a “large plan”.  The audit must be performed by an Independent Qualified Public Accountant (IQPA) and the audit report must be attached to the Form 5500 filing for that plan year.  Large plan audits typically cost several thousand dollars each year, and for some retirement plans the audit represents one of the largest components of total plan cost.

When is a “large plan” audit required?

  1. For a brand new plan, the plan is considered to be a “large plan” – and requires an audit for its initial plan year – if it has 100 or more eligible participants on the plan effective date
  2. If the plan does not require a “large plan” audit in its initial year, it is not required to have an audit performed until the first plan year for which there are more than 120 participants as of the first day of the plan year.

In other words, if the employer’s plan files as a “small plan” it doesn’t have to file as a “large plan” until the first plan year for which the plan has more than 120 participants as of the first day of a plan year.  But – once an employer’s plan starts filing as a “large plan” – it must continue filing as a “large plan” until the participant count gets back below 100.

For purposes of the participant count, a participant includes:

  1. any eligible employee who is actively contributing to the plan
  2. any eligible employee even if they’re not contributing
  3. any former employee who still has a balance in the plan

It should be noted that the IRS permits employers to “force out” of the plan (into an IRA) any former employee balance that is below $5,000.  For any plan that has a total participant count near the threshold to be considered a “large plan”, “forcing out” these small balances of former employees can mean the difference between requiring a large plan audit and avoiding one.

TRPC administers hundreds of “large plans” that require an annual audit, and works closely with employers and their Independent Qualified Public Accountant to prepare the Form 5500 and coordinate the audit report’s inclusion with the Form 5500 filing.

For more details visit www.trpcweb.com or contact us.