Employer-sponsored qualified retirement plans can be powerful tools for attracting and retaining employees. However, plans such as 401(k)s, pensions, ERISA-covered 403(b)s, and profit-sharing plans also come with important administrative and fiduciary responsibilities. For some employers, those responsibilities include obtaining an independent audit of the plan’s financial statements as part of the annual Form 5500 filing process.
While a retirement plan audit may seem like another compliance requirement, it can offer meaningful benefits for both the organization and its employees. Recent legislative changes, including provisions of the SECURE 2.0 Act, have added complexity to retirement plan administration and expanded participation-related requirements. As a result, employers should pay close attention to plan oversight, participant counts, operational procedures, and documentation.
Why retirement plan audits matter
The primary purpose of a qualified retirement plan audit is to obtain an independent opinion on the plan’s financial statements and required supplemental schedules. During the audit process, the auditor may also identify operational or compliance issues related to federal rules enforced by the U.S. Department of Labor or the IRS.
For employers, this independent review can provide valuable reassurance that the plan’s financial information is reliable and that plan administration is being handled appropriately. It can also help leadership better understand whether internal processes, service provider responsibilities, and fiduciary oversight practices are aligned with plan documents and regulatory expectations.
Generally, ERISA requires large retirement plans to include an audit report with their annual Form 5500 filing. For many defined contribution plans, including 401(k) plans, large-plan status is typically based on the number of participants with account balances at the beginning of the plan year, subject to certain exceptions. Smaller plans may be exempt from the annual audit requirement, and certain growing plans may qualify for relief under special participant-counting rules.
Even if your organization’s plan is not required to undergo an audit, regular review remains important. Employers should continue monitoring participant counts, maintaining complete records, and evaluating plan operations to help prevent issues before they become costly or disruptive.
Choosing the right retirement plan auditor
Selecting an auditor should be done carefully. In addition to reviewing professional qualifications, licensing, and experience, employers should confirm that the auditor is independent. The auditor should not have financial or business relationships with the plan, the plan sponsor, or related parties that could compromise objectivity.
For example, the Department of Labor generally does not consider an auditor independent if that auditor also maintains the plan’s financial records. Employers may also benefit from using a formal request for proposal process that clearly defines the audit’s scope, objectives, timeline, and any special considerations.
Key benefits of a qualified retirement plan audit
A retirement plan audit can provide value beyond satisfying ERISA requirements. It may help employers identify and correct issues, improve internal processes, and strengthen employee confidence in the plan.
1. Identify administrative errors
An audit may reveal problems such as late employee deferral deposits, incorrectly calculated employer matching contributions, inconsistent application of eligibility rules, or incomplete documentation. Identifying these issues early may give employers an opportunity to correct them before they lead to penalties, participant concerns, or regulatory scrutiny.
2. Strengthen internal controls
Auditors often review processes related to contributions, distributions, loans, hardship withdrawals, investment reporting, participant data, and related documentation. This review can help uncover gaps in approval procedures, recordkeeping, segregation of duties, or other controls that may expose the organization to errors, misinterpretation, or fraud risk.
3. Improve fiduciary oversight
Plan sponsors have a responsibility to act in the best interests of participants. A retirement plan audit can help clarify whether the plan is being administered according to its governing documents and applicable rules. It can also help leadership better understand how responsibilities are divided among internal staff, third-party administrators, investment advisors, and other service providers.
4. Support employee trust
Retirement benefits are personal and important to employees’ long-term financial security. A well-managed audit process can help demonstrate that the employer is taking plan administration seriously and working to protect participants’ interests.
Protecting your organization and your people
If your organization sponsors a qualified retirement plan, an audit should not be viewed only as a regulatory formality. It can be a valuable opportunity to confirm that your plan is being administered accurately, consistently, and in accordance with applicable requirements.
Whether your plan requires an annual audit or your organization simply wants to improve plan administration, professional guidance can provide helpful insight. A qualified advisor can help you understand your responsibilities as a plan sponsor, identify potential risks, and take steps to keep your retirement plan on solid footing.
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Frequently Asked Questions
What is a qualified retirement plan audit?
A qualified retirement plan audit is an independent review of a retirement plan’s financial statements and required supplemental schedules. The audit may also help identify administrative, operational, or compliance issues related to federal retirement plan rules.
Which retirement plans may require an audit?
Employer-sponsored retirement plans that may require audits include 401(k) plans, traditional pension plans, ERISA-covered 403(b) plans, and profit-sharing plans. In general, large plans subject to ERISA must include an audit report with their annual Form 5500 filing.
Are smaller retirement plans required to have an annual audit?
Not always. Many smaller retirement plans are exempt from the annual audit requirement, and some growing plans may qualify for relief under participant-counting rules. However, employers should still monitor participant counts, maintain strong records, and periodically review plan operations.
How can a retirement plan audit benefit an employer?
A retirement plan audit can help uncover administrative errors, strengthen internal controls, improve fiduciary oversight, and support employee confidence in the plan. It may also help employers correct issues before they lead to penalties or regulatory scrutiny.
Why is auditor independence important for a retirement plan audit?
Auditor independence helps ensure that the audit opinion is objective and reliable. An auditor should not have financial or business relationships with the plan, the plan sponsor, or related parties that could impair objectivity.