By Devin Fouse · Audit Director, GreenGrowth CPAs · Employee Benefit Plan Audits & Assurance | Published August 2026 | Audit & Assurance
The 401k audit requirement changed in a way that saves many plan sponsors real money, and plenty of them have never checked. The threshold is still one hundred participants. What changed is who counts toward the 401k audit requirement. Since plan years beginning on or after January 1, 2023, only participants holding an account balance at the start of the plan year count toward that number. Eligible employees who never contributed and hold nothing no longer count at all. The Department of Labor expected roughly twenty thousand plans to fall out of large-plan filing as a result.
QUICK ANSWER
A retirement plan generally triggers the 401k audit requirement when it has 100 or more participants with account balances at the beginning of the plan year. Before 2023 the count included every eligible employee, whether or not they ever contributed. That change alone moved many plans below the line. The 80-120 rule then gives further room, letting a plan in that range file in the same category as the prior year. Large plans attach an audit by an independent qualified public accountant to the Form 5500. Small plans generally do not.
401k Audit Requirement: At a Glance
What Plan Sponsors Should Check This Year
- The threshold did not move: The 401k audit requirement still starts at 100 participants at the beginning of the plan year. Only the definition of who counts changed.
- Balances, not eligibility: Since plan years beginning in 2023, only participants with an account balance count. Eligible non-contributors with zero balance no longer do.
- Terminated employees still count: If a former employee left money in the plan, that balance keeps them in the count.
- The 80-120 rule gives room: A plan between 80 and 120 participants may file in the same category as the prior year. So crossing the line does not automatically trigger an audit in year one.
- First plan year works differently: A brand new plan counts participants at the end of that first year rather than the beginning.
- It must be an IQPA: A large plan audit has to be performed by an independent qualified public accountant, not a bookkeeping review.
- GreenGrowth’s role: We are a member of the AICPA Employee Benefit Plan Audit Quality Center. Book a participant count check →
What Actually Changed About the 401k Audit Requirement
In February 2023 the Department of Labor, the IRS and the Pension Benefit Guaranty Corporation revised the Form 5500 instructions. The change to the 401k audit requirement applies to plan years beginning on or after January 1, 2023.
Before that revision, a defined contribution plan counted every eligible employee. Someone who could join but never did, and held nothing, still counted toward the hundred. That produced an odd result. A plan could owe an audit because of people with no money in it.
Now the count includes only participants with an account balance at the beginning of the plan year. That is a narrower group, often much narrower.
The 401k Audit Requirement: A Worked Example
Take a plan with 120 eligible employees at the start of the year. Of those, 80 hold account balances and 40 have never contributed anything.
Under the old method that plan counted 120, sat above the threshold, and owed an audit. Under the current method it counts 80. So it files as a small plan, and the 401k audit requirement does not apply.
Nothing about the business changed. Headcount is identical. Only the counting rule moved, which is exactly why so many sponsors have not noticed.
💬 The Conversation Worth Having
An auditor telling you that you may not need an audit is an unusual conversation, so it is worth saying plainly. Plenty of sponsors have kept commissioning a plan audit every year out of habit, because they crossed the line once under the old rules and nobody revisited it. Meanwhile some plans genuinely did cross the line and have no idea. Both errors come from the same root cause. Nobody pulled the current-method number. It takes about ten minutes, and your recordkeeper already has it.
Do you know your count under the current method, or the one from before 2023?
How to Test the 401k Audit Requirement Yourself
You do not need an advisor to get an indicative answer on the 401k audit requirement. Your recordkeeper or third-party administrator holds everything required.
▶ Who Counts and Who Does Not
| Person | Counts? | Why |
|---|---|---|
| Active employee, contributing | Yes | Holds an account balance |
| Eligible employee, never contributed | No | Zero balance, and eligibility alone no longer counts |
| Former employee with money left in | Yes | A balance keeps them in the count regardless of employment |
| Former employee, fully cashed out | No | No balance remains at the measurement date |
| Beneficiary holding a balance | Yes | The account exists and carries a balance |
Measure at the first day of the plan year. For a brand new plan, measure at the end of the first plan year instead.
Where to Find Last Year’s Number
Your prior filing already reports it. On Form 5500 look at line 6g(2). On Form 5500-SF look at line 5c(2). Then ask your recordkeeper for the current-year figure as of the first day of the plan year.
If the number sits anywhere near a hundred, get the underlying list rather than the summary. Terminated participants with small balances are the usual reason a count comes in high.
The 80-120 Rule Gives You More Room
Crossing a hundred does not automatically trigger the 401k audit requirement in that first year. This is the second thing sponsors miss.
A plan with between 80 and 120 participants at the beginning of the plan year may file in the same category it used the prior year. So a plan that filed as a small plan last year, and now counts 108, may elect to file as a small plan again.
That election holds until the count exceeds 120 at the start of a plan year. It cuts both ways too. A plan that filed as a large plan and has since fallen to 95 may keep filing as a large plan. That is rarely what anyone wants.
Combine the two changes and the effect compounds. A plan with 121 eligible employees, of whom 99 hold balances, counts 99 under the current method. That sits below a hundred, and the 80-120 rule then gives additional room on top.
If the 401k Audit Requirement Does Apply
Three things matter once the 401k audit requirement applies to you.
It has to be an IQPA. The audit must come from an independent qualified public accountant and attaches to the Form 5500 filing. A bookkeeping review or an internal check does not satisfy the requirement.
Timing is tight and gets tighter. Calendar-year plans on extension file by October 15. Firms performing these audits fill capacity through September. So a sponsor discovering the obligation in late September has a difficult few weeks. Our Form 5500 deadline guide covers the filing dates and late-filing relief in detail.
Not every firm should do this work. Employee benefit plan audits are a specialty. The Department of Labor has historically found deficiency rates here higher than sponsors expect. So ask whether the firm belongs to the AICPA Employee Benefit Plan Audit Quality Center, and how many plan audits it performs annually.
How GreenGrowth CPAs Handles the 401k Audit Requirement
We are a member firm of the AICPA Employee Benefit Plan Audit Quality Center. That membership carries continuing education and peer review commitments specific to this work, and it exists precisely because plan audits are a specialty rather than general assurance.
What a 401k Audit Requirement Count Check Involves
A 401k audit requirement count check costs nothing and takes about ten minutes. We pull your prior filing, ask your recordkeeper for the current-year participant list, then tell you plainly whether you sit above or below the line. Sometimes the answer is that you have been paying for an audit you no longer need. We will say so.
Where an audit is genuinely required, we perform it. You can see the wider practice on our audit and assurance services page.
KEY TAKEAWAYS
- ›The threshold is still 100 participants at the start of the plan year. Only the definition of who counts changed, and it changed for plan years beginning on or after January 1, 2023.
- ›Only participants with an account balance count now. Eligible employees who never contributed no longer do, which the DOL expected to remove roughly twenty thousand plans from large-plan filing.
- ›Former employees who left money in the plan still count. Terminated participants with small balances are the usual reason a count comes in higher than expected.
- ›The 80-120 rule gives further room, letting a plan in that range file in the same category as the prior year. It cuts both ways, so a shrinking plan can stay stuck as a large filer.
- ›Where an audit is required it must come from an independent qualified public accountant. A bookkeeping review does not satisfy the requirement.
- ›Find last year’s figure on Form 5500 line 6g(2) or Form 5500-SF line 5c(2), then ask your recordkeeper for the current-year number as of the first day of the plan year.
401k Audit Questions Answered
The Threshold
When does a 401(k) plan need an audit?+
Generally when the plan has 100 or more participants with account balances at the beginning of the plan year. That audit, performed by an independent qualified public accountant, attaches to the Form 5500 filing. The 80-120 rule may allow a plan in that range to continue filing in the prior year’s category instead.
What changed about counting participants in 2023?+
For plan years beginning on or after January 1, 2023, only participants holding an account balance at the start of the plan year count toward the 100-participant threshold. Before that, the count included every eligible employee whether or not they had ever contributed. The Department of Labor expected the change to remove roughly twenty thousand plans from large-plan filing.
Do former employees still count toward the threshold?+
Yes, if they left money in the plan. An account balance keeps a person in the count regardless of whether they still work for you. Someone who fully cashed out no longer counts. Terminated participants holding small balances are the most common reason a count comes in higher than a sponsor expected.
Running the Numbers
What is the 80-120 participant rule?+
A plan with between 80 and 120 participants at the beginning of the plan year may file in the same category it used the prior year. So a plan that filed as a small plan and now counts 108 may elect to file as a small plan again. That election holds until the count exceeds 120. It works in reverse too, which means a shrinking plan can remain a large filer.
Where do I find my plan’s participant count?+
Your prior filing reports it. Look at line 6g(2) on Form 5500, or line 5c(2) on Form 5500-SF. Then ask your recordkeeper or third-party administrator for the current-year figure measured at the first day of the plan year. If the number sits near a hundred, request the underlying participant list rather than the summary.
How does counting work for a brand new plan?+
A plan in its first year measures participants at the end of that first plan year rather than the beginning, since no balances exist on day one. After the first year the normal beginning-of-year measurement applies. Sponsors launching a plan mid-year should confirm the measurement date with their recordkeeper before assuming small-plan status.
If an Audit Applies
Can our regular accountant perform the plan audit?+
Only if they are an independent qualified public accountant and genuinely do this work. Employee benefit plan audits are a specialty with their own testing requirements, and the Department of Labor has historically found deficiency rates higher than sponsors expect. Ask whether the firm belongs to the AICPA Employee Benefit Plan Audit Quality Center and how many plan audits it performs each year.
When is the plan audit due?+
The audit attaches to the Form 5500, so it follows that filing deadline. Calendar-year plans on extension file by October 15. Firms performing these audits fill their capacity through September, so a sponsor who discovers the obligation late in the season has a genuinely difficult few weeks ahead.
Working With GreenGrowth CPAs
How does GreenGrowth CPAs help plan sponsors?+
We run a count check that establishes whether you sit above or below the threshold under the current method, using your prior filing and a current participant list from your recordkeeper. It takes about ten minutes. Where an audit is genuinely required we perform it. GreenGrowth CPAs is a member firm of the AICPA Employee Benefit Plan Audit Quality Center.
You May Be Paying for an Audit You No Longer Need.
Book a participant count check. Ten minutes, no cost, and a clear answer on whether the threshold applies to your plan under the current method.
GreenGrowth CPAs · Audit & Assurance Team
