ERISA audit requirements apply to private-sector retirement and welfare plans that have 100 or more participants with account balances at the start of the plan year. Those plans must attach audited financial statements, prepared by an independent qualified public accountant, to the Form 5500 they file each year with the Department of Labor, the IRS, and the Pension Benefit Guaranty Corporation.1Internal Revenue Service. Form 5500 Corner Plans below the threshold are exempt if they meet the bonding and asset-protection conditions in federal regulations.2eCFR. 29 CFR 2520.104-46 – Waiver of Examination and Report of an Independent Qualified Public Accountant for Employee Benefit Plans With Fewer Than 100 Participants
Does Your Plan Need an Audit
The count is the whole ballgame. For plan years beginning on or after January 1, 2023, only participants and beneficiaries with an account balance at the start of the plan year count toward the 100-participant threshold. Under the earlier rule, every eligible employee counted, whether they enrolled or not. That change alone dropped many plans below the line.
The count still includes former employees and retirees who hold a balance, along with beneficiaries of deceased participants who retain an interest in plan assets. Run the number under the current method each year if you sit anywhere close to 100.
The 80-120 Participant Rule
A plan with between 80 and 120 participants at the start of the current plan year can keep the same filing status it used the previous year.3U.S. Department of Labor. Frequently Asked Questions on the Small Pension Plan Audit Waiver Regulation Filed small last year and started this year with 115 participants? You can file small again and skip the audit. The rule works both ways: a large-plan filer that drops to 85 can stay large if that is simpler.
Once the count exceeds 120, the plan must file as large and include audited financials that year, no matter how it filed before. Drop back below 100 in a later year and small-plan treatment returns.
Full-Scope or ERISA Section 103(a)(3)(C) Audit
Plans that need an audit choose between two approaches.
In a full-scope audit, the accountant independently tests every category of plan assets: investments, contributions, benefit payments, and participant data. It is thorough and expensive.
Most plans elect the alternative. Under ERISA Section 103(a)(3)(C), a plan whose investment assets are held by a regulated bank, trust company, or insurance carrier can direct the auditor to rely on that institution’s certification of investment values rather than test them independently.4eCFR. 29 CFR 2520.103-8 – Limitation on Scope of Accountant’s Examination The auditor still examines contributions, distributions, participant data, and internal controls. Only the certified investment information is excluded from direct testing.
The election trims cost and time. It carries a trade-off. DOL studies found that nearly 60 percent of these audits contained significant deficiencies in the areas the auditor was still responsible for examining. The certification narrows the audit; it does not shrink the auditor’s job on everything else. Plan administrators making the election must provide written representations confirming the certifying institution qualifies and that the election is permissible for the plan.
Picking a Qualified Auditor
ERISA Section 103(a)(3)(A) requires that an independent qualified public accountant examine the financial statements. Qualified means a certified or licensed public accountant under state law. Independent means no financial interest in the plan or plan sponsor that would compromise objectivity.5Federal Register. Independence of Employee Benefit Plan Accountants
A CPA license is necessary but not enough. The Department of Labor has repeatedly traced audit deficiencies back to firms that lacked experience with benefit-plan rules.6U.S. Department of Labor. Selecting An Auditor For Your Employee Benefit Plan Contributions, benefit payments, participant data, and prohibited-transaction testing are where deficiencies show up most. Before signing an engagement letter, verify the firm’s state license, ask how many benefit-plan audits it performs annually, and check whether it belongs to the AICPA’s Employee Benefit Plan Audit Quality Center, which requires additional training and peer review of its members.
What to Give the Auditor
A clean handoff shortens the audit and lowers the bill. Your auditor will ask for:
- The current signed plan document, all amendments, summary plan descriptions, and trust agreements.
- Participant census data, including hire and termination dates, dates of birth, contribution elections, and account balances.
- Payroll records showing employee deferrals, employer contributions, and the dates each amount was deposited into the trust.
- Bank and trust statements, investment transaction reports, and loan documentation.
- A substantially complete draft Form 5500. Current auditing standards require the auditor to review the Form 5500 schedules before dating the audit report.
If you elected an ERISA Section 103(a)(3)(C) audit, the certifying institution’s written certification of the investment information it holds is essential. Without it, the auditor cannot rely on the numbers and will either perform full-scope testing on those assets or issue a modified report.
Late deposit of employee deferrals is one of the most common problems auditors uncover. The DOL expects employee contributions to reach the trust as soon as they can reasonably be segregated from the employer’s general assets. If your payroll process creates a lag, document why and fix it before the auditor asks.
When to File
The Form 5500, with any required audited financial statements attached, is filed electronically through EFAST2.7U.S. Department of Labor. Welcome – EFAST2 Filing The deadline is the last day of the seventh month after the plan year ends. Calendar-year plan? That’s July 31.
Need more time? File Form 5558 before the original due date. The extension is automatic once filed and pushes the deadline to the 15th day of the third month after the original date, which is October 15 for calendar-year plans.8Internal Revenue Service. About Form 5558, Application for Extension of Time to File Certain Employee Plan Returns You get one extension per cycle. The filing needs electronic signatures from the plan administrator and the auditor, and you should retain the electronic confirmation receipt as proof of timely submission.
Penalties for Late or Incomplete Filings
Missing the deadline exposes the plan sponsor to penalties from two separate agencies, and they stack.
The Department of Labor can assess a civil penalty under ERISA Section 502(c)(2) for each day a complete annual report is overdue. As of 2024, the daily cap was $2,670, and DOL adjusts it upward each January under the Federal Civil Penalties Inflation Adjustment Act.9U.S. Department of Labor. Fact Sheet: Adjusting ERISA Civil Monetary Penalties for Inflation The DOL has discretion within that cap, but the numbers add up quickly on a filing that is months late.
The IRS imposes a separate penalty under IRC Section 6652(e): $250 per day for each late return, capped at $150,000 per filing.10Internal Revenue Service. 401(k) Plan Fix-It Guide – You Haven’t Filed a Form 5500 This Year These run independently of the DOL penalty, so a plan that is six months late can face six-figure exposure from both agencies combined.
An incomplete filing is treated the same as no filing. Submitting a Form 5500 without the required audited financial statements, for example, counts as a failure to file a complete report.
Fixing Overdue Filings Through the DFVCP
Plan sponsors who have missed one or more Form 5500 filings can cut DOL penalty exposure sharply by entering the Delinquent Filer Voluntary Compliance Program (DFVCP). The program offers fixed, reduced penalties in exchange for voluntarily submitting the overdue returns.11U.S. Department of Labor. Delinquent Filer Voluntary Compliance Program
The DFVCP caps depend on plan size:
- Small plans: $10 per day, capped at $750 per late filing and $1,500 per plan.
- Large plans: $10 per day, capped at $2,000 per late filing and $4,000 per plan.12U.S. Department of Labor. DFVC Penalty Calculator
Set those caps against a standard penalty above $2,600 per day and the math speaks for itself. One boundary matters: the DFVCP only covers DOL penalties. It does not automatically relieve IRS penalties under IRC Section 6652(e) or PBGC penalties, though both agencies may grant separate relief. A sponsor that has already received a late-filer letter from the IRS is not disqualified from the DFVCP, but the letter can affect separate IRS relief options. If you have overdue filings, entering the DFVCP before either agency contacts you preserves the most flexibility.