401(k) Plan Audit: Does Yours Need One? 80-120 Rule

For plan years beginning on or after January 1, 2023, the rule that decides whether your 401(k) plan audit is required changed in a way that removed roughly 18,699 defined contribution plans from the requirement, according to the U.S. Department of Labor. The trigger is no longer how many employees are eligible to join the plan. It now counts only the participants who actually hold an account balance at the beginning of the plan year.

That single change moves many growing companies out of audit territory, and it puts the older “80-120 rule” back in play for plans near the line. Below is how the counting works now, who still needs an independent audit, and the exact thresholds and dates you can verify against the Department of Labor and the Form 5500 instructions as of 2026.

Key details:

• 100 participants with account balances at the start of the plan year is the line between a small plan (no audit) and a large plan (audit required).
• The counting method changed effective for plan years beginning on or after January 1, 2023; the final rule became effective April 25, 2023.
• The audit itself is an examination by an Independent Qualified Public Accountant (IQPA), required under ERISA section 103(a)(3)(A).

What Triggers a 401(k) Plan Audit Requirement?

A 401(k) plan audit is triggered when the plan covers 100 or more participants with account balances at the beginning of the plan year. At that size the plan is a “large plan” and must attach a report from an Independent Qualified Public Accountant to its Form 5500. Plans below that line are “small plans” and are generally exempt from the audit; a small plan that still needs lender-facing assurance may consider a compilation or review instead.

The threshold sits in the Department of Labor’s small-plan waiver at 29 CFR 2520.104-46, which lets qualifying plans skip the accountant’s report. One condition matters for most 401(k) plans: at least 95% of plan assets must be “qualifying plan assets,” or any shortfall must be covered by a fidelity bond. See the DOL regulation on the small-plan audit waiver at 29 CFR 2520.104-46.

“…the administrator of an employee benefit plan shall engage, on behalf of all plan participants, an independent qualified public accountant, who shall conduct such an examination of any financial statements of the plan… to enable the accountant to form an opinion as to whether the financial statements and schedules… are presented fairly in conformity with generally accepted accounting principles.” — ERISA section 103(a)(3)(A), 29 U.S.C. 1023

How Did the 401(k) Participant Counting Rules Change in 2023?

The 2023 change switched the count from everyone eligible to only participants with an account balance. Before, a plan counted employees who were eligible to participate even if they never enrolled and held no balance. Now, for defined contribution plans, you count only participants who have a balance in the plan as of the beginning of the plan year.

The Department of Labor stated the new method plainly in its fact sheet on the 2023 Form 5500.

“The counting methodology for defined contribution retirement plans will be based on the number of participants with account balances, rather than the current method that counts individuals who are eligible to participate even if they have not elected to participate and do not have an account in the plan.” — U.S. Department of Labor, EBSA, Fact Sheet: Changes for the 2023 Form 5500

The DOL estimated the change would let about 18,699 defined contribution plans file as small plans and skip the audit, saving an estimated $7,500 or more each in annual audit expense (Federal Register final rule, February 24, 2023). The rule became effective April 25, 2023 and applies to plan years beginning on or after January 1, 2023.

What Is the 80-120 Participant Rule for 401(k) Audits?

The 80-120 rule lets a plan with between 80 and 120 participants (inclusive) at the beginning of the plan year keep filing in the same category, small or large, that it used for the prior year, provided a Form 5500 was filed last year. In practice, a growing plan that filed as small can stay small, and defer its first audit, until its count exceeds 120.

The election is codified word for word in the Department of Labor’s reporting regulation at 29 CFR 2520.103-1.

“If a plan has between 80 and 120 participants (inclusive) as of the beginning of the plan year, the plan administrator may elect to file the same category of annual report… that was filed for the previous plan year.” — 29 CFR 2520.103-1(d)

So the practical breakpoint for a first-time filer is not 100, it is 120. Once participants with account balances exceed 120, large-plan (audited) filing is required.

Which Participant Counts Require an Audit? A Scenario Table

The table below shows how the beginning-of-year count and the 80-120 election combine to determine whether an audit is required this year. All counts are participants with account balances at the start of the plan year, as measured on Form 5500 for a defined contribution plan.

New plans are the exception to the beginning-of-year measure. Because no balances exist on day one, a first-year defined contribution plan determines large-versus-small status using participants with account balances at the end of the first plan year (Form 5500 line 6g(2)).

Who Must Get an Independent 401(k) Plan Audit, and When Is It Due?

The plan administrator of a large plan must engage an Independent Qualified Public Accountant to examine the plan’s financial statements and attach that report to Form 5500. The form, with any required audit, is due the last day of the seventh month after the plan year ends, which is July 31 for a calendar-year plan.

Filing Form 5558 grants an automatic two-and-a-half-month extension, pushing a calendar-year plan’s deadline to October 15 (Internal Revenue Service). Keep the records that support the filing and its audited statements for at least six years after the filing date, as ERISA section 107 requires.

These rules govern a large system: as of 2023, about 126 million Americans participated in defined contribution plans holding over $9 trillion in assets.

What Happens If You Don’t Get a Required 401(k) Audit?

Skipping a required audit means filing an incomplete Form 5500, which the Department of Labor can reject and penalize. The inflation-adjusted civil penalty for a late or deficient filing reaches up to $2,739 per day under ERISA section 502(c)(2) (2025 adjustment, unchanged for 2026), with no statutory cap on the total.

Cost should not be the only reason to choose an auditor, because quality varies sharply. In a DOL study of the 2011 filing year, 39% of plan audits had one or more major deficiencies. The firms performing the fewest benefit-plan audits had a 76% deficiency rate, while those performing the most had only 12%. Experience with plan audits, not the lowest fee, is the signal that protects participants.

What This Means for You

Count your participants with account balances as of the first day of your current plan year, then compare to the table above. If you are under 100, you are almost certainly a small plan with no audit this year. If you are between 80 and 120, look at how you filed last year, because the 80-120 election may let you stay where you are.

If your count has crossed 120, or you crossed 100 without a prior small-plan filing to fall back on, budget for the audit now and gather your documents early. The switch to counting only funded participants means some plans that expected an audit no longer need one, so it is worth rechecking rather than assuming last year’s answer still holds.

Next Steps

1. Pull your beginning-of-year participant count with account balances from your recordkeeper, not the eligible-employee roster.
2. Confirm which category you filed for the prior plan year, so you know whether the 80-120 election is available.
3. If an audit is required, engage an experienced IQPA well before the July 31 deadline (or October 15 with an extension) and start assembling supporting records.

Our team handles employee benefit plan audits and broader assurance and attestation services for Colorado plan sponsors and employers nationwide.

Frequently Asked Questions

When Does a 401(k) Plan Need an Audit?

A 401(k) plan needs an audit when it covers 100 or more participants with account balances at the beginning of the plan year, making it a large plan that must attach an IQPA report to Form 5500. For plan years beginning on or after January 1, 2023, only participants with a balance count toward that 100 threshold.

What Is the 80-120 Rule for 401(k) Audits?

The 80-120 rule lets a plan with 80 to 120 participants at the start of the plan year file in the same category (small or large) it used the prior year. A growing plan that filed as small can remain small, and defer its first audit, until its participant count exceeds 120.

What Happens If You Don’t Get a Required 401(k) Audit?

Filing Form 5500 without a required audit report is treated as an incomplete filing and can be rejected. The Department of Labor may assess a civil penalty of up to $2,739 per day the filing is late under ERISA section 502(c)(2), with no statutory maximum.