Offering a 401(k) plan is a powerful tool to attract and retain top talent while supporting employees’ long-term financial goals. However, with that benefit comes fiduciary responsibility, including compliance with IRS and Department of Labor (DOL) regulations. If your plan is subject to an annual audit, preparing thoroughly can ensure the process runs smoothly and efficiently.

Here’s what plan sponsors need to know to get ready for a 401(k) audit:

1. Understand When an Audit Is Required

Generally, a 401(k) plan must be audited if it has 100 or more participants with account balances at the beginning of the plan year. This includes:

• Current employees who are contributing or receiving employer contributions
• Terminated or retired employees with balances still in the plan
• Deceased participants with account balances

Some exceptions apply, such as the 80-120 participant rule, which may allow smaller plans to delay an audit under specific circumstances.

2. Choose the Right Auditor

The Department of Labor mandates that plan audits be conducted by an independent qualified public accountant. Look for a firm with expertise in employee benefit plan audits and familiarity with ERISA requirements. A knowledgeable auditor will not only perform the audit but can also help you identify areas for improvement. Selecting an auditor that is a member of the AICPA Employee Benefit Plan Audit Quality Center will ensure your auditor is also well trained, in most cases.  You can find the listing here:  https://www.aicpa-cima.com/resources/download/ebpaqc-firm-members

3. Gather Key Documents and Information

Efficient preparation starts with document readiness. Commonly requested items include:

• Plan document and all amendments
• Summary Plan Description (SPD)
• Adoption agreement (if applicable)
• Annual Form 5500 filing
• Trust or custodian statements
• Payroll and census data
• Participant deferral elections
• Proof of timely remittance of employee contributions
• Loan and distribution documentation

Your auditor will provide a detailed request list, but organizing these documents in advance reduces delays.

4. Reconcile Contributions and Payroll

Ensure that employee deferrals and employer contributions match the plan provisions and payroll records. Verify that:

• Contributions are deposited timely, per DOL standards
• Deferral percentages or flat dollar amounts are correctly applied
• Compensation definitions match what’s outlined in your plan document

Discrepancies here are a common audit finding, so reconciling proactively can prevent issues.

5. Review Internal Controls

Auditors will assess your internal controls around the plan. Take time to review:

• How participant eligibility is tracked
• Who approves loans and distributions
• How contribution changes are processed
• Whether controls are in place for monitoring third-party administrators (TPAs)

If your process relies on multiple departments or service providers, make sure everyone understands their role in maintaining compliance.

6. Coordinate with Service Providers

Your TPA, recordkeeper, and payroll provider each play a critical role. Work with them to ensure:

• Timely and accurate data transmission
• Access to systems and reports for your auditor
• Shared understanding of deadlines and audit timing

7. Address Prior Year Findings

If this is not your first audit, be prepared to explain how you’ve addressed any prior year recommendations or deficiencies. Auditors will review your corrective actions and improvements.

8. Communicate Internally

Notify your HR, finance, and payroll teams about the upcoming audit. Assign a point person or small team to handle auditor requests and keep the process on track. Having a coordinated response team improves turnaround time and accuracy.

Corrigan Krause Can Help

A successful 401(k) audit hinges on preparation, organization, and proactive communication. By investing time upfront and working with an experienced audit team, plan sponsors can navigate the audit process confidently while strengthening their plan’s overall compliance and performance.

If you feel that your company’s plan is encroaching 100 or more participants or have already passed those limits and want to make an auditor change, then it is time to reach out to Corrigan Krause’s employee benefit audit team!

To learn more about how to prepare for an efficient and effective employee benefit plan audits, or to learn if you received an efficient audit, please reach out to sheri@corrigankrause.com.