An ERISA audit is required when an employee benefit plan has 100 or more participants at the beginning of the plan year and must file Form 5500 as a large plan with audited financial statements from an independent qualified public accountant.
If your company sponsors a 401(k) plan or other employee benefit plan, you may eventually face an important compliance milestone: the ERISA audit requirement.
In most cases, an ERISA audit becomes required when a plan reaches 100 participants at the beginning of the plan year. At that point, the plan’s Form 5500 filing must include audited financial statements prepared by an independent qualified public accountant (IQPA).
However, companies should start planning well before reaching 100 participants. Many organizations begin preparing when the plan approaches 80 participants to avoid compliance issues, operational surprises, and last-minute audit pressure.
Below we explain the ERISA audit threshold, participant counting rules, and why proactive planning matters for plan sponsors.
When Is an ERISA Audit Required?
An ERISA audit is generally required when:
- A retirement or employee benefit plan has 100 or more participants at the beginning of the plan year
- The plan must file Form 5500 as a large plan
- The Form 5500 filing must include audited financial statements from an independent qualified public accountant (IQPA)
Because of the 80–120 participant rule, companies approaching 80 participants should begin preparing for an ERISA audit even if the audit is not yet required.
The ERISA Audit Requirement: The 100-Participant Rule
Under ERISA (the Employee Retirement Income Security Act) and Department of Labor (DOL) regulations, most employee benefit plans must include an independent qualified public accountant (IQPA) audit with their Form 5500 filing once the plan reaches 100 participants.
Specifically:
- Plans with 100 or more participants at the beginning of the plan year generally must obtain an ERISA audit.
- The audit report must be attached to the plan’s Form 5500 filing submitted to the Department of Labor.
- The audit must be performed by an independent CPA firm experienced in ERISA audits and employee benefit plan audits (including 401(k) audits).
This requirement most commonly affects:
- 401(k) plans
- 403(b) plans
- Employee stock ownership plans (ESOPs)
- Other large employee benefit plans
Failing to include an audit when required can result in Form 5500 rejection and potential penalties from the Department of Labor.
Who Counts as a “Participant”?
The participant count is often misunderstood and is one of the most common reasons companies are caught off guard by the ERISA audit requirement.
A “participant” generally includes:
- Employees eligible to participate in the plan, even if they choose not to contribute
- Active employees enrolled in the plan
- Former employees with account balances
- Retired employees with balances
- Beneficiaries receiving benefits
Because eligible but non-participating employees count, companies may reach the 100-participant threshold sooner than expected.
The 80–120 Participant Small Plan Rule
ERISA includes what is commonly called the 80–120 participant rule, which allows some flexibility in determining whether a plan must file as a small or large plan.
If a plan filed as a small plan (fewer than 100 participants) in the previous year, it may continue to file as a small plan until the participant count exceeds 120.
However:
- The rule only applies if the plan previously qualified as a small plan
- Once a plan files as a large plan, it generally must continue including audits in future filings
This rule exists to prevent plans from switching between small-plan and large-plan filing status each year due to minor fluctuations in participant counts.
Because of this rule, the practical planning window often begins around 80 participants.
Common Situations That Trigger an ERISA Audit
Companies often cross the ERISA audit threshold faster than expected due to factors such as:
- Rapid hiring or company growth
- Eligibility rules that include employees who do not contribute
- Mergers or acquisitions that add employees to the plan
- Former employees maintaining balances in the plan
Because eligible employees count as participants, companies may reach the audit threshold earlier than anticipated.
Why Companies Should Start Planning at Around 80 Participants
Although the formal threshold is 100 participants, waiting until that point to prepare for an ERISA audit can create significant challenges.
Organizations approaching 80 participants should begin evaluating ERISA audit readiness for several reasons.
1. Selecting the Right ERISA Audit Firm Takes Time
Not all CPA firms are qualified to perform employee benefit plan audits. The Department of Labor closely monitors ERISA audit quality, and firms must have specialized expertise.
Starting early allows you to:
- Evaluate experienced ERISA audit firms
- Understand pricing and engagement timelines
- Ensure your auditor meets Department of Labor quality standards
2. Operational Issues Often Surface During the First Audit
The first ERISA audit is typically the most complex.
Auditors often review:
- Payroll and contribution processes
- Eligibility and enrollment procedures
- Participant census data
- Timeliness of employee contributions
- Plan document compliance
If issues exist, identifying them before the audit year begins allows companies to correct them proactively.
3. Documentation and Internal Processes Need Preparation
Preparing for an employee benefit plan audit may require gathering documentation such as:
- Trust statements
- Participant census reports
- Payroll data
- Plan documents and amendments
- Service provider reports (such as SOC reports from plan recordkeepers)
Beginning preparation around 80 participants gives organizations time to organize records and strengthen internal controls.
4. Avoiding Last-Minute Compliance Pressure
Form 5500 deadlines arrive quickly. Plans requiring audits must coordinate between multiple parties, including:
- Internal finance or HR teams
- The plan recordkeeper
- Third-party administrators (TPAs)
- The independent auditor
Starting early helps ensure the audit and Form 5500 filing remain on schedule.
Key Takeaways for Plan Sponsors
If your company sponsors a 401(k) plan or other employee benefit plan, keep these ERISA audit guidelines in mind:
- 100 participants is the primary threshold where an ERISA audit becomes required.
- Participant counts include eligible employees and former employees with balances.
- The 80–120 participant rule provides flexibility but should not delay preparation.
- Companies approaching 80 participants should begin evaluating ERISA audit readiness and potential audit partners.
Taking proactive steps early can make the transition from a small plan filing to a large plan filing smooth and compliant.
Frequently Asked Questions About ERISA Audits
Does every 401(k) plan require an ERISA audit?
No. Most 401(k) plans are required to obtain an audit once they reach 100 participants at the beginning of the plan year, unless they qualify for certain limited exemptions.
What happens if a required ERISA audit is missing?
If a Form 5500 filing is submitted without a required audit, the Department of Labor may reject the filing, potentially leading to penalties and required corrections.
How long does an ERISA audit take?
Most ERISA audits take four to eight weeks, depending on the complexity of the plan and the availability of documentation.
Final Thoughts
An ERISA audit is a significant milestone for growing organizations.
While the 100-participant threshold determines when audits are formally required, the best practice is to begin planning earlier. For many companies, around 80 participants is the ideal time to start preparing for an ERISA audit.
Early preparation helps ensure your organization has the right documentation, processes, and audit partner in place, reducing compliance risk and making the first audit far more manageable.
Need Help Preparing for an ERISA Audit?
If your employee benefit plan is approaching the 100-participant threshold, early preparation can make the first audit significantly smoother.
Working with a CPA firm experienced in ERISA audits and employee benefit plan audits can help ensure compliance with Department of Labor requirements and avoid costly filing delays.
If your organization is nearing the audit threshold, it may be helpful to discuss audit readiness and planning timelines with an experienced ERISA audit specialist.
