For high-growth companies, especially in technology, headcounts can climb faster than almost any number on the balance sheet. A team of 40 can become 90 in a single funding cycle, and a strong recruiting quarter adds dozens of new employees to your benefit within weeks of their start date. That momentum is a sign of success. It can also quietly create a compliance obligation that many plan sponsors don’t realize applies to them: an independent audit of their retirement plan.
The requirement is tied to Form 5500, which most plan sponsors already file, but the threshold that triggers an audit is easy to cross without realizing it. Understanding how the rule works and when it applies can save a growing company from a last-minute scramble at filing time.
The Form 5500 is a government-required report of plan activity and data that must be filed annually for almost all 401(k) plans. It provides the Department of Labor (DOL) and the Internal Revenue Service (IRS) with visibility into how a plan is managed on behalf of its participants.
The type of plan, along with the plan census data, determines which version of the Form 5500 you must file, and which attachments are required. Smaller plans generally file the streamlined Form 5500-SF (short form). Larger plans file the full Form 5500, and if a plan meets the definition of a “large plan filer,” an audit performed by an Independent Qualified Public Accountant must be attached to the filing.
In other words, crossing from a “small plan” to a “large plan” isn’t just a paperwork change. It adds an independent audit performed by a licensed CPA firm to your annual compliance calendar.
Generally, a plan audit is required when an existing plan has 100 or more participants with an account balance on the first day of the plan year (typically January 1). New plans are handled slightly differently. Because there are no participants with a balance when a brand-new plan first begins, the audit requirement for a new plan is based on the number of participants with an account balance on the last day of the plan year.
The chart below shows the difference between a small filer and a large filer:
| Small Plan Filer | Large Plan Filer | |
|---|---|---|
| Form filed | Form 5500-SF (short form) | Form 5500 (full) |
| Participants with account balances (first day of plan year) | Fewer than 100 (up to 120 under the 80-120 rule) | 100 or more |
| Independent audit required? | No | Yes |
Even when a plan appears to cross the threshold, two exceptions can change the outcome.
The audit requirement is a snapshot in time — it looks at your participant count on the first day of the plan year. That timing is exactly what makes it easy to miss during a growth phase.
A company can file a simple Form 5500-SF one year, hire aggressively over the next twelve months, and discover only at the following filing that it has quietly become a large plan filer.
Technology companies are particularly prone to this pattern: hiring often comes in waves tied to funding rounds, product launches, or new market expansion, and newly hired employees frequently enroll in the 401(k) right away. A plan that was comfortably under the threshold in January can look very different by next January 1.
The challenge is that an audit is a complicated process and takes time, especially in the first year. It requires finding an independent CPA firm, access to plan records and payroll data, and enough lead time to complete the audit before the filing deadline. A company that realizes too late is left rushing or risks a late or incomplete filing.
A little monitoring goes a long way. Growing plan sponsors can avoid surprises by:
If your workforce has grown significantly over the past year or you’re unsure whether your plan is approaching the audit threshold, now is the time to evaluate your Form 5500 filing requirements. Withum’s Employee Benefit Plan Services Team can help you assess your obligations, prepare and file Form 5500 and navigate the audit process before deadlines become a concern.
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