If your 401(k) plan qualifies as a large plan filer, you need to attach an independent audit report to your annual Form 5500 filing. This article explains when an audit is required, what you're responsible for, and how to get it done on time. Expand the sections below to learn more.
Form 5500 is a government-required annual report of your plan's activity and assets. If your plan qualifies as a "large plan filer," you need to attach an independent audit report to your Form 5500 filing. The audit helps verify that your plan is operating according to the plan document and meets requirements set by the Internal Revenue Service (IRS) and Department of Labor (DOL).
A plan audit is required when:
Existing plans have 100 or more participants (both terminated and currently employed) with an account balance on the first day of the plan year (Jan. 1 for most Gusto 401(k) plans).
New plans have 100 or more participants with an account balance on the last day of the plan year, since no one would have a balance when a brand-new plan first begins.
If Gusto Retirement has determined that your plan is subject to the audit requirement, you will get an email and a task on your plan dashboard.
Two exemptions may apply:
Short plan year deferral. If your plan year is shorter than seven months, you may defer the audit to the following year. The subsequent year's audit will cover both years. For example, if your plan's effective date is Sep. 1 and the plan year ends Dec. 31, that initial short plan year (Sep. 1 – Dec. 31) is less than seven months. Your first audit would happen the following year and cover both periods.
80 – 120 rule. You are excluded from the audit requirement if (1) your plan filed a Form 5500-SF the previous year without an audit and (2) your participant count did not exceed 120 at the beginning of the current plan year. For example, if you filed a Form 5500-SF last year with 93 participants and this year you have 115, you can continue filing a Form 5500-SF until you reach 121 participants at the beginning of a plan year. However, if you filed a Form 5500 with an audit last year for 130 participants and this year you have 110, you still need to file with an audit this year. Once your count drops below 100, you can file a Form 5500-SF again without an audit.
Gusto Retirement reviews plans for these waivers and applies them when applicable. If you got an audit notification and believe you qualify for an exemption, email [email protected] for assistance.
You are responsible for:
Hiring a qualified, independent public accounting firm to complete the audit.
Having your payroll register and other documentation ready to share.
Responding to inquiries from your auditor or Gusto Retirement as quickly as possible.
Completing compliance tasks on your Gusto Retirement dashboard. Your auditor will want to review annual compliance testing, which is not available until those tasks are done.
Signing the representation letter from your auditor before the report can be issued.
Important: Gusto Retirement does not complete or arrange the audit for you.
Engage a qualified, independent public accounting firm before Mar. 31 to give yourself enough time to file your Form 5500. We recommend engaging as early as possible to secure a spot on the auditor's schedule.
Important: If you have not engaged an auditor by Jul. 1, there is a significant risk your Form 5500 will not be filed on time, even with an extension. Your auditor may also charge additional fees for a compressed timeline.
You may choose any qualified firm. Below are a few firms other Gusto Retirement clients have used that are familiar with Gusto Retirement reports.¹
Key considerations when selecting your auditor:
Experience performing employee benefit plan audits.
Conflicts of interest.
Capacity to meet the filing deadline.
Pricing.
Important: Failing to engage an auditor means your Form 5500 will not be filed. The DOL penalty for late filing is up to $2,670 per day with no maximum. The IRS imposes $250 per day, up to $150,000 per plan year.
Once you engage with an auditor, provide their information by completing the Form 5500 audit task on your dashboard. The task asks for the firm name, firm Employer Identification Number (EIN), auditor name, and auditor email address.
After you complete the task, our team will grant your auditor access to the audit package. Audit packages are typically available between Mar. 31 and Apr. 30. Your auditor cannot retrieve the package until you complete the task. You will get weekly reminders until it is done.
During the audit, Gusto Retirement will be in regular contact with your auditor. A typical audit takes about 6 – 8 weeks to complete if it stays on track, though complex audits can take up to 6 months.
Note: Requests for custom reports may result in additional fees.
You may also have other compliance-related tasks on your dashboard, like a Company Info or Compensation Collection task. Completing these on time is important, as your auditor will want to review compliance testing once those tasks are done. Delays may delay your audit.
Your audit firm will provide a representation letter that you need to sign before the auditor can release the audit report. If your audit is being completed close to the Oct. 15 filing deadline, you need to be available to sign so the auditor can issue their report on time.
After your auditor completes their work and you sign the representation letter, they will prepare a report including financial statements and an auditor opinion. That report must be attached to the Form 5500 when filed.
Some auditors provide the report directly to Gusto Retirement, but some do not. After your audit is done, make sure we get a copy so we can attach it to the Form 5500. We cannot file without the audit report.
Gusto Retirement will send follow-up emails requesting the final financials as the extended filing deadline (Oct. 15) approaches. You are responsible for the late-filing penalty if the report is not provided on time.
¹ The auditors listed are independent third parties, and Gusto Retirement makes no representations as to their qualifications or suitability. In providing this list, Gusto Retirement is not acting in a fiduciary capacity or providing investment advice.
Your plan may also need to file other forms related to your Form 5500, like Form 5558, Form 8955-SSA, and Form 5330.
Form 5558 is used to apply for an extension to file the Form 5500 series (Form 5500, Form 5500-SF, and Form 8955-SSA). Gusto Retirement will file Form 5558 automatically if it appears we cannot file your Form 5500 by the initial Jul. 31 deadline.
Form 8955-SSA is a Social Security Administration form used to report employees who no longer work for your company but still have an account balance under your plan. It is also used to report when terminated employees who appeared on a prior Form 8955-SSA have moved all of their money out of the plan.
Former employees who have not moved money out of their account will be notified by the Social Security Administration based on Form 8955-SSA information once they apply for Social Security benefits.
Form 5330 is an IRS form used to report excise taxes owed related to employee benefit plans, including 401(k) plans. Gusto Retirement will prepare a Form 5330 on behalf of plan sponsors for the following situations, if applicable:
Employee deferrals and loan payments were not deposited into the plan on a timely basis (late deposits).
A failed Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) test is corrected by distributing excess deferrals after Mar. 15 for automatic contribution arrangement (ACA) plans, or after Jun. 30 for eligible automatic contribution arrangement (EACA) and qualified automatic contribution arrangement (QACA) plans.
Employer contributions exceed the deductions limit, according to Gusto Retirement records.
For more information on these forms, visit the DOL website.
Q: How do I confirm the number of participants with a balance?
A: To get a Participant Count Report, email [email protected]. You can then let us know if you believe there are inconsistencies that should be corrected.
Q: How much will the audit cost?
A: Your auditor can provide an estimated cost, as the price depends on factors like business size and audit type. According to some sources, an annual audit can range from $8,000 – $15,000.
Q: What if my audit will not be done before the Jul. 31 deadline?
A: If your audit will not be completed before Jul. 31, Gusto Retirement will automatically file a Form 5558 extension at no additional cost. This extends your deadline to Oct. 15.
Q: Will I need to do anything to file my Form 5500?
A: Make sure Gusto Retirement gets a copy of the audit report so we can attach it to the Form 5500 before filing with the DOL. If Gusto Retirement is the plan's 3(16) fiduciary, we will file and sign the Form 5500. If not (typically for self-service plans), you will need to complete a signature task on your dashboard. Your Form 5500 will not be filed until the signature task is done.
Q: What other forms may my plan need?
A: Your plan may require a Form 8955-SSA or a Form 5330. If your plan requires either form based on our records, you will be notified. See the Related forms section for details.
Q: Does my plan have an Employee Retirement Income Security Act (ERISA) fidelity bond?
A: Gusto Retirement maintains an ERISA bond covering your plan. This provides protection in the event of a claim of lost plan assets due to fraudulent or dishonest acts by Gusto Retirement, our employees, or our agents. However, the bond we maintain does not cover employees of your organization. Consult your legal counsel to determine whether other individuals managing your plan funds need additional bonding.
Q: What do I do if I get a letter from the IRS or DOL?
A: Forward a copy of the letter to [email protected] so we can help.