Approaching 100 Employees in Your 401(k)? 

Here’s What You Need to Know About the Audit Requirement

As your company grows, your 401(k) responsibilities grow, too. One of the biggest milestones comes when your plan reaches 100 eligible participants with account balances — that’s when the annual audit requirement kicks in.

If you’re not prepared, this can lead to compliance issues, unexpected costs, and administrative stress. Here’s what you need to know and how to stay ahead of it.

What Triggers a 401(k) Plan Audit?

It’s not just about having 100 employees on your payroll. The audit requirement is triggered when your plan hits 100 eligible participants with account balances on the first day of the plan year (typically January 1).

Key Points:

• “Eligible participants” include current employees, terminated employees with balances, and even those who haven’t contributed yet but are eligible.
• The audit threshold is based on Form 5500 filings—specifically whether your plan is considered “large” or “small.”
• A “large plan” (100+ participants) must include an independent audit with its Form 5500 filing.

What Is the “80-120 Rule”?

The 80-120 Participant Rule can offer temporary relief.

• If your plan had fewer than 121 participants last year, you might still qualify as a “small plan” this year.
• This rule allows some plans to delay the audit even if they’ve gone over the 100-participant mark.
• Once you hit 121 or more, you’ll need an audit, no exceptions.

Tip: Always consult with your TPA or 401k advisor to confirm eligibility.

Learn more: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/changes-for-the-2023-form-5500-and-form-5500-sf-annual-return-reports

Why 401k Audits Matter

Audits aren’t just about checking boxes — they protect participants and keep your plan compliant with Department of Labor (DOL) rules.

Here’s why they matter:

• Help uncover operational errors (like late deposits or incorrect match calculations).
• Ensure your plan is being run in line with ERISA guidelines.
• Can prevent costly penalties from compliance missteps.

How to Prepare for Your First 401(k) Audit

Getting audit-ready doesn’t have to be overwhelming. Start early and lean on your providers.

Steps to take now:

• Organize plan documents: Adoption agreement, summary plan description, amendments, etc.
• Verify payroll and contribution records are accurate and match your plan terms.
• Coordinate with your recordkeeper and TPA to streamline data requests.
• Choose an experienced CPA firm that specializes in ERISA audits.

Crossing the 100-participant mark is a major milestone — and with it comes added responsibilities. 

But with the right guidance and preparation, your first 401(k) plan audit can be a manageable process.

Don’t wait until you’re scrambling at year-end. Start planning now, and lean on subject matter experts like to help you navigate every step.Want to find out if your plan is close to triggering the audit requirement or need help getting audit-ready? Let’s Talk »