Preparing for Your First 401(k) Audit — Steps to Ensure Compliance

If your business has reached or exceeded 100 eligible participants in your retirement plan, you may now be subject to an annual 401(k) audit requirement under ERISA and IRS rules. For many employers, this first audit can be a daunting process—but it doesn’t have to be.

With the right preparation and guidance from experienced CPA firms like Wilson & Associates CPA, your first 401(k) audit can become an opportunity to reinforce your plan’s integrity, improve processes, and demonstrate fiduciary responsibility.

This guide walks you through everything you need to know to prepare for your first 401(k) audit in 2025.

401(k) audits are required for “large plans”—those with 100 or more eligible participants on the first day of the plan year.

Participants include:

• Active employees eligible to participate (whether or not enrolled)

• Former employees with account balances

• Beneficiaries of deceased employees

🔄 If your plan fluctuates near the 100-participant threshold, the 80-120 Rule may apply, potentially deferring the audit requirement for one year.

Your auditor will need access to a variety of plan-related documents, including:

• Plan Document & Summary Plan Description (SPD)

• Adoption Agreements & Amendments

• Annual Form 5500 filings

• Trust reports from plan custodians

• Payroll records (including employee deferrals & employer contributions)

• Participant census data

• Loan documentation (if applicable)

📁 Tip: Create a secure, digital audit folder to keep all required documents in one place and reduce delays.

Auditors will review:

• Whether eligible employees were offered participation at the correct time

• If contributions were withheld and deposited timely

• Whether employer matches were calculated correctly

🛡️ Common Mistake: Late deposits of employee deferrals, which may result in DOL penalties and correction filings.

Ensure accuracy and documentation for:

• Employee and employer contributions

• Plan expenses

• Participant distributions and rollovers

• Hardship withdrawals and loan repayments

🔍 Mistakes in loan administration (e.g., exceeding IRS limits or missing payments) are a common red flag for auditors.

Auditors will match payroll data against plan deposits. Review:

• Compensation definitions used to calculate contributions

• Bonus and commission treatment

• Exclusion of ineligible compensation, if allowed by plan document

📊 Use payroll audit reports to confirm alignment and address discrepancies early.

Internal controls show how your business safeguards plan data and ensures compliance. Auditors will evaluate:

• Access restrictions to plan data

• Procedures for contribution remittance

• Review processes for distributions and loans

✅ Proactive documentation of procedures strengthens your position during audit.

You’ll need to provide documentation from:

• Recordkeepers

• Third-party administrators (TPAs)

• Investment advisors or fiduciaries

🧾 Make sure fee disclosures (408(b)(2) and 404(a)(5)) are up to date and provided to participants as required.

Your CPA will work with you and your TPA to ensure:

• Proper selection of schedules (e.g., Schedule H for large plans)

• Accurate financial disclosures

• Submission of audited financial statements as part of the filing

📆 The due date is July 31, 2025 for calendar-year plans, with a possible 2.5-month extension via Form 5558.

A specialized CPA firm like Wilson & Associates CPA ensures that your first 401(k) audit is:

• Efficient and well-organized

• Fully compliant with DOL and IRS standards

• Completed in time for Form 5500 filing

• Accompanied by advisory recommendations to improve controls and processes

🧠 We also help you understand your fiduciary responsibilities, avoid red flags, and communicate clearly with your service providers.

• Have all plan documents and amendments ready

• Verify eligibility tracking and contribution accuracy

• Reconcile payroll with plan deposits

• Confirm proper loan and distribution procedures

• Gather year-end reports from your recordkeeper/TPA

• Choose a qualified CPA audit firm early

While your first 401(k) audit may seem intimidating, it doesn’t have to be. With proper preparation, good documentation, and the right partner, the process becomes a valuable opportunity to strengthen your retirement plan operations and build employee trust.

Wilson & Associates CPA provides end-to-end 401(k) audit services tailored for businesses like yours.

Reach out today to schedule a discovery call and begin preparing for your 2025 audit.