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What Qualifies Your Employee Benefit Plan for an Audit?

03/24/2021 Kelsea Faulkner

The season of employee benefit plan audits is quickly approaching. Does your company’s plan require an audit? Employee benefit plans exceeding 100 participants might require an Independent Certified Audit Opinion submitted with the filing of their Form 5500.

Audit requirements are determined by the total number of participants at the beginning of a plan year. Therefore, for a calendar year plan, the total number of participants as of January 1st. Fortunately, plan Administrators are able to use the IRS’ “80-120” Participant Rule when determining audit requirements.

Plans that exceed 100 participants but, have fewer than 120 participants, are able to file the same Form 5500 that was filed in the previous plan year. These plans do not require an audit if an audit was not completed in the previous plan year.

Plans exceeding 120 participants are required to submit an Independent Certified Audit Opinion with their Form 5500 submission. A plan administrator will no longer be required to submit an audit opinion when the total plan participants has declined to under 100 or less.

A plan administrator can determine if they have exceeded the total number of participants by (1) reviewing the prior year Form 5500, (2) contacting the Third Party Administrator of the Plan, and (3) understanding and completing a calculation of total participants.

(1)   Reviewing the Prior Year Form 5500

Plans that have submitted a Form 5500-SF in the prior year should review line item 5b – Total number of participants at the end of the plan year. The total number of participants at the end of the plan year typically becomes the total number of participants for the beginning of the current plan year. If this number exceeds 120 participants, the plan will require an audit for the current plan year.

(2)   Contacting the Third Party Administrator (TPA) of the Plan

Depending on the agreement with the TPA, they might be preparing the Form 5500’s and completing other tasks related to your specific plan. Contact your TPA and see if they know the total number of participants at the beginning of the plan year.

(3)   Understanding and Completing a Calculation of Total Participants

An individual is considered a participant of the employee benefit plan when the individual meets one of the following requirements:

  • Active participant, includes someone who is currently employed and meets the eligibility requirements of the plan or who is earning or retaining credited service. An active participant does not include a nonvested former employee who has received a distribution or deemed distribution.
  • Retired or separated participants receiving benefits from the plan.
  • Other retired or separated participants entitled to future benefits.
  • Deceased individuals who have one or more beneficiaries receiving or entitled to benefits under the plan.

Total number of participants is the sum of all individuals meeting the four categories noted above.

If our plan qualified for an audit, what are my next steps?

Plans that have triggered the audit requirement for the plan year should contact their VonLehman representative as soon as possible. Form 5500 submissions, with audit report, are due seven months subsequent to the plan’s year-end (7/31 for calendar year-end plans). Extensions of 2.5 months are allowed on the submission of Form 5500’s (10/15 for calendar year-end Plans).  For additional guidance, please contact Kelsea Faulkner at kfaulkner@vlcpa.com or 800.887.0437.

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