Does Your Retirement Plan Require an Audit? Understanding the 80-120 Participant Rule

By Dan Ryan, Manager, Employee Benefit Services Group

Many plan sponsors are surprised to learn that a retirement plan audit may be triggered not by workforce growth, but by former employees who still have account balances in the plan.

Quick answer: A retirement plan generally needs an audit when it has 100 or more participants with account balances on the first day of the plan year. If the participant count is between 80 and 120, the plan may be able to file in the same category it used the prior year.

When is a Retirement Plan Audit Required?

The Department of Labor (DOL) requires employee benefit plans with 100 or more participants on the first day of the plan year to include an audit report from an independent qualified public accountant with their annual Form 5500 filing.

For purposes of determining whether an audit is required, a participant is generally defined as an employee, former employee, or beneficiary with an account balance under the plan at the beginning of the plan year.

Fortunately, there is an important exception known as the 80-120 participant rule.

What is the 80-120 Participant Rule?

If a plan has between 80 and 120 participants with account balances on the first day of the plan year, the plan sponsor may continue filing in the same category used for the prior year's Form 5500 filing.

This means:

• A plan that filed as a small plan in the prior year may continue to file as a small plan and generally avoid the audit requirement until participant counts exceed 120.
• A plan that filed as a large plan in the prior year generally must continue filing as a large plan while participant counts remain between 80 and 120.

The rule provides flexibility for growing plans and helps prevent plans from moving back and forth between filing categories as participant counts fluctuate from year to year.

Why this matters: For many plan sponsors, crossing the audit threshold is less about rapid growth and more about terminated employees who keep balances in the plan. Sponsors are often surprised to learn that participant counts can increase even when active employee headcount remains relatively stable.

Many sponsors discover they are approaching the threshold during Form 5500 preparation rather than earlier in the year. Monitoring participant counts periodically can provide more time to evaluate filing requirements and prepare for a potential audit.

Does Your Plan Require an Audit?

The table below illustrates when a retirement plan is generally required to obtain an audit and when the 80-120 participant rule may apply.

Prior-Year Filing Status	Participant Count at Beginning of Year	Filing Status This Year
Small Plan	80-120	May remain Small Plan
Large Plan	80-120	Must remain Large Plan
Small Plan	More than 120	Large Plan
Large Plan	Less than 80	Small Plan
Small Plan	Less than 80	Small Plan

Examples

The following examples demonstrate how participant counts and prior-year filing status affect whether an audit is required.

Scenario	Participant Count as of Beginning of Plan Year	Prior-Year Status	Audit Required?
Company A	95	Small Plan	No
Company B	103	Small Plan	No (80-120 rule)
Company C	117	Large Plan	Yes
Company D	125	Small Plan	Yes
Company E	75	Small Plan	No

How Plan Sponsors Can Monitor the Audit Threshold

For plan sponsors whose participant counts are approaching the audit threshold, proactive management of participant accounts may help maintain small-plan status.

Consider the following strategies:

• Force out eligible small account balances for terminated employees.
• Monitor terminated participant accounts on a regular basis.
• Contact former employees with remaining balances to discuss available distribution options.
• Review plan documents to ensure force-out provisions are included and operating as intended.
• Take advantage of the SECURE 2.0 increase in the involuntary cash-out limit from $5,000 to $7,000, where applicable.

What to Review Now

The audit threshold is only one part of plan oversight. Sponsors near the threshold should also look at whether census data is accurate, plan documents are current, employee deferrals are deposited consistently, and audit documentation is organized before fieldwork begins.

If your plan is approaching the 100-participant mark, start by confirming the participant count with your recordkeeper, reviewing last year’s Form 5500 filing category, and identifying terminated participants who still have balances in the plan.

Final Thoughts

The retirement plan audit requirement is not always as straightforward as exceeding 100 participants. The 80-120 participant rule provides valuable flexibility that may allow certain plans to avoid an audit even after crossing the 100-participant threshold.

Plan sponsors should periodically review participant counts, particularly those of terminated employees with remaining account balances, and work closely with their third-party administrators, auditors, and advisors to understand how the rules apply to their specific circumstances. By monitoring participant counts throughout the year and utilizing available plan provisions, sponsors may be able to reduce administrative costs while remaining compliant with DOL requirements.

If your plan is near the audit threshold, Boyer & Ritter can help you review participant counts, prior-year filing status and audit-readiness considerations before the Form 5500 deadline.

About the Author

Dan J. Ryan is a Manager in Boyer & Ritter’s Employee Benefit Services Group with experience auditing 401(k), pension, ESOP, and health and welfare plans. He helps organizations address evolving regulatory requirements and fiduciary responsibilities. Contact Dan at dryan@cpabr.com.