Newburg | CPA News Brief

By Newburg CPA Staff Writer

May 2, 2023

401k audits (also known as employee benefit plan audits) are an important part of the regulatory compliance process and are essential for the employer to have a working knowledge regarding. Generally, employers with more than 100 eligible participants on the first day of the plan year are required to have an independent audit completed to ensure the plan meets IRS and Department of Labor guidelines. Commencing the audit process early during the initial year can help identify record-keeping deficiencies and prevent major issues down the road. A thorough review of your plan documents by a CPA firm can detect and highlight any issues that may exist. In addition, the CPA firm auditor can identify and uncover any documents or information that may be missing. Newburg CPA sees this as a critical step to ensure compliance and best practices.

It is also important to note that on December 29, 2022, President Joe Biden signed into law the Secure 2.0 Act introducing over 90 changes to the federal rules governing workplace retirement plans. While these changes will be assimilated over time through the beginning of 2025, it is important for the employer to have working knowledge of what changes to their plan documents are on the horizon.

What Could Go Wrong?

One common issue that arises during first year 401k audits is with the accuracy of required documents. These documents are often generated when the plan is established, and include the plan document, trust agreement, Summary Plan Description (SPD), and Investment Procedure Statement. Any discrepancies between these documents and the transactions the plan have executed need to be addressed, as failing to do so could lead to disqualification of the plan and tax penalties. Having an accounting firm create accurate and up-to-date documents is paramount, as they must accurately reflect the plan’s current status and circumstances.

Another important issue that may arise during the first-year audit is the determination of whether the plan meets IRS eligibility requirements. The plan must adhere to the most current requirements for it to remain an eligible plan, and the auditor must ensure that the plan is in compliance. This includes reviewing the contributions made to the plan, as well as any loans allowed, and distributions taken from the plan.

The auditor should also assess the plan’s compliance with fiduciary requirements. Typically, this includes reviewing the effectiveness of the plan’s investments and the adequacy of the processes for regularly monitoring their performance. In addition, fiduciaries must make sure to follow ERISA regulations, and appropriate participant disclosures should be made.

Finally, the auditor should review key documents such as the plan’s employer-adoption agreement, recordkeeper contract, and participant loan documents. It is also important to review any documents related to service providers, including Form 5500 and Form 8955-SSA.

  • Form 5500 for 401k is an annual report that must be filed with the Internal Revenue Service (IRS) by any employer-sponsored retirement plan, such as a 401k, that has more than one hundred (100+) participants. The form requires employers to report the plan’s financial status, including assets, liabilities, and funding. This information is used by the IRS to monitor and evaluate compliance with the Employee Retirement Income Security Act (ERISA) and to identify potential tax issues. Those employers with less than 100 participants are considered small plans and are eligible to file Form 5500-SF, which is a less onerous filing.


  • Form 8955-SSA is a form that is used to report “separated participants” with 4 or more years of service in a 401(k) plan to the Internal Revenue Service (IRS). This form is typically required when an employee terminates employment with a company that sponsors a 401(k) plan, and the employee has been with the company long enough to be eligible for a distribution of their 401(k) funds. The form is used to inform the IRS of the employee’s retirement plan account balance so that the correct taxes can be assessed.

These documents must adhere to the latest IRS rules and regulations in order for the plan to remain compliant.

In summary, auditing the first-year 401k plan is an important step to ensuring the plan is properly managed and remains in compliance with all relevant regulations. Newburg CPA, an accounting firm located just outside of Boston, Massachusetts, can help. Our 401K audit team provides companies with responsive support and efficient coordination with your plan sponsor, administrator, or trustee.

Feel free to contact us for more information at or visit our website at

Newburg | CPA can help

Newburg CPA, a Boston-based accounting firm can assist you. Contact us if you have questions.