You should start planning for your retirement at the peak of your career. You don’t need to wait until you are 50 before looking at different retirement options. In fact, you should start putting money in your 401 (k) retirement plan as early as possible. This way, you will have a much bigger nest egg waiting for you by the time you retire. However, there are certain times when you might be required to hire a retirement program audit company. According to federal law, there are certain instances where an annual audit will have to be carried out.
When Do You Need to Hire an Audit Company?
As per the regulations stipulated by federal law, an annual audit needs to be carried out of a defined contribution or a defined benefit retirement plan when the total number of eligible participants goes up to 100. Now, how do you know about the eligibility of each participant? Eligible participants are divided into three categories:
Deceased: Participants who have passed away, but their beneficiaries are actively receiving the benefits or are entitled to receiving benefits that were originally given to the participant.
Retired/ Separated: Individuals who no longer work for a particular company, though they are still receiving benefits from the company or are entitled to receiving benefits from the company.
Active: People who are currently under an employment contract by the sponsor of the plan. They are covered under the plan and also receive credited services because of the plan. This includes all people who are eligible for the plan, even though they may not be participating in the plan.
It is important to get an accurate count of the total number of participants in the program. When the total count reaches 100, the administrator of the plan is required to hire a third-party Chartered Public Accountancy Firm in order to carry out an independent audit of the plan. The report of the audit will then be filled out in Form 5500. Eventually, the form is submitted to the IRS.
What Are The Exceptions?
There are certain exceptions to this rule. According to the 80-120 Participant Rule, the plan administrator can file Form 5500 and register it as a “small plan” for the past year. This will allow the administrator to file the same form in the “small plan” category for this year. An independent audit of small plans is not a requirement. As a result, the administrator won’t be required to hire an independent CPA firm. The retirement program audit company is hired to give an opinion and to make sure that the plan adheres to the requirements set forth by the government.