Year-End Audit Q&A for Retirement Plan Sponsors
As year-end approaches, many retirement plan sponsors wonder whether their plan will need an audit. Understanding the audit requirements ahead of time can help reduce the effort, help you meet your compliance obligations and lead to better outcomes.
One of the most vital tasks required of retirement plan sponsors is determining whether their plan will require an independent audit, including how to prepare for and complete it.
Audits can help ensure that your retirement plan operates according to plan provisions while helping to protect your organization from compliance risks. With integrated 401(k) plan solutions providing the strategic advantage of reduced errors and enhanced compliance, plan sponsors can approach audit season with greater confidence. That's why understanding the requirements is key to maintaining a successful retirement plan.
Here are the questions every plan sponsor should be asking as year-end approaches:
Q: When is my retirement plan required to have an audit?
A: This depends on the number of participants with a balance in your plan at the beginning of the plan year. Plans with 100 or more participants generally must undergo an annual independent audit, while plans with fewer than 100 participants are typically exempt from audit requirements.
It's important to note that "participants" includes both active participants and terminated participants who still have a balance in the plan.
Q: What does the retirement plan audit process involve?
A: The audit process typically unfolds in three phases. During the pre-audit phase, plan administrators gather participant data, plan documents, financial records, and investment statements to provide to the auditors. The auditor will then begin by examining plan operations and participant data, reviewing compliance with plan terms and federal regulations, and evaluating administrative procedures and internal controls. They will also review and confirm that the Plan's financial statements are prepared in accordance with appropriate standards and provide the plan administrator with an audit report. In the post-audit phase, administrators review audit findings and recommendations and address any identified issues.
Q: What happens if my retirement plan isn't compliant?
A: Potential consequences include:
- Loss of the plan's tax-qualified status
- Financial penalties from the IRS and the Department of Labor
- Personal liability for plan fiduciaries
- Legal costs from participant lawsuits
Federal regulations under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code establish strict guidelines for retirement plan set-up and administration. If any issues are found during the audit, Plan Sponsors should work with their service providers and legal counsel to make any necessary corrections to bring the plan back into compliance.
Q: How should I prepare for my retirement plan audit throughout the year?
A: Year-round preparation is essential for audit success:
- Regularly review participant eligibility, contribution limits and loan activity.
- Keep current records of plan documents, amendments, committee minutes, participant communications, investment decisions, compliance testing results and more.
- Monitor Internal Revenue Service and Department of Labor updates, and make sure plan documents reflect current requirements.
Keep in mind, integrated 401(k) plan solutions can streamline many of these preparation tasks by automatically maintaining compliance checks, reducing manual errors and maintaining consistent documentation.
The bottom line for retirement plan sponsors
Effective retirement plan management is about building a foundation of year-round due diligence to protect your organization while serving your employees' path to retirement security. Learn how ADP can help by reaching out to an ADP retirement services specialist or calling (800) 432-401K.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
M-789918-2025-08-14
