401k Plan Audit: Form 5500 and Audit Financial Statements

Jun 21, 2022Audit & Assurance, Business

Your business is growing, and so is your 401k plan. But when a plan reaches a specific size, it must be audited by an independent accounting firm. In part one of this blog series, we focused on fiduciary responsibilities, and in part two, we discussed operational compliance. In this installment, we will discuss financial reporting. You may be familiar with Form 5500, filed for small and large plans. However, additional financial reporting is required once you are considered a large plan and need an audit.

Does your business need a form 5500 audit?

Form 5500

Form 5500 is designed to disclose plan-related information to the IRS and plan participants. There are three versions of Form 5500, each with different filing requirements based on participant count.

  • 5500-EZ – This form can only be used by plans covering business owners and their spouses. It is typically called a solo 401k plan.
  • 5500-SF – Generally, a plan covering less than 100 participants on the first day of the plan year can file this simplified version of Form 5500.
  • 5500 – The full Form 5500 and related schedules must be filed for 401k plans covering more than 100 participants.

There are two important exceptions to the general rules above:

  • If a retirement plan holds employer securities or investments that are difficult to value, such as real estate or collectibles, it will be required to file the full Form 5500, regardless of size.
  • Plans with between 80 and 120 participants on the first day of the plan year can file Form 5500 in the same category as indicated on the prior year’s Form 5500 filing.

Example: Assume a plan had 75 employees on January 1, 2020. They would have been required to file Form 5500-SF, the short form, for 2020.

Now assume the number of plan participants increased to 105 on January 1, 2021. Even though the plan now has more than 100 participants, it has the option to again file a Form 5500-SF for 2021.

Further assume that the number of plan participants increases again to 125 on January 1, 2022. Therefore, the plan must file a full Form 5500 for 2022.

Regardless of the type of form, it must be filed by the last day of the seventh month following the end of the plan year (July 31 for calendar year plans) and can be extended for two and a half additional months (October 15 for calendar year plans).

Most plan service providers will prepare and file the required form, but it is still essential that management understand the filing requirements for their 401k plans to ensure it is filed timely and accurately.

Audited Financial Statements

Our previous blog post discussed the compliance requirements tested as part of an audit. However, your plan auditors will also be responsible for auditing the plan’s financial statements, which consist of two parts:

  • Financial information
  • Disclosure of plan provisions

The financial information needed for the audit includes beginning and ending investment balances and all activity throughout the year (contributions, withdrawals, investment earnings, etc.). The plan’s third-party administrator (TPA) is typically responsible for providing this information to plan management and the plan auditor.

If your plan service provider is a bank, trust company, an insurance company, or a similar institution, they will likely provide a certified trust statement stating the investment balances and activity are complete and accurate. If your plan receives this certification, your plan auditor can reduce the amount of audit procedures related to these items.

If your service provider is not one of the qualified institutions listed above, they will still provide investment statements but cannot certify the completeness and accuracy of the information. This will require the plan auditor to perform additional procedures to ensure the investment balances and activity are complete and accurate.

The audited financial statements also contain various disclosures related to the plan’s operations. These include, but are not limited to, eligibility requirements, contribution provisions, and the plan’s vesting schedule.

Before completing the audit, plan auditors must review a draft form of the 5500 and compare the information presented in the form to information presented in the financial statements. The audited financial statements must then be included with the Form 5500 filing.


Choosing an auditor well-versed in benefit plan audits can be extremely helpful in guiding plan sponsors through this process and can help avoid financial reporting mistakes. If you have any questions or have an employee benefit plan that needs an audit, feel free to contact us at [email protected], and we will assist you.


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