Art of the Qualified Plan Audit

In Summary Mandatory Roth Catch-Up for High Earners: Effective January 1, 2026, catch-up eligible participants with prior-year FICA wages over $145,000 (“High Earners”) must make catch-up contributions on a Roth basis. Employers can elect for any Roth contributions made during the year to satisfy the mandated amount, which is $7,500 for 2025. Correction Methods for … Continued

In Summary Common Errors and Overpayments: Due to the complexity of retirement plan rules, errors are common, resulting in Excess Amounts (operational failures). If these excess funds are distributed to a participant, it becomes an Overpayment Failure, which can stem from issues like inaccurate testing, incorrect vesting, or ineligible distributions. Correction Relief for Inadvertent Overpayments: … Continued

In Summary The 80-120 Rule for Audit Requirement: A retirement plan’s need for an annual audit is determined by counting participants with account balances on the first day of the plan year. The 80-120 rule is an exception that allows a plan with 80 to 120 participants to file as a small plan (no audit) … Continued

In Summary Risk of Tainted Assets: Directly merging plan assets preserves their source classification, creating a risk that previous qualification errors in the merged plan (resulting in “tainted assets”) could affect the audited financial statements of the successor plan. Rollovers Eliminate Risk: The optimal way to avoid tainted assets is by having participants conduct rollovers … Continued

In Summary Final Form 5500 Filing, Asset Distribution, and Legal Title: A plan’s final Form 5500 filing obligation is triggered not by the effective date of termination, but by the complete distribution of all assets. In a merger, the final filing is determined by the date the legal title of the assets transfers to the … Continued

In Summary The New Program: There is a the new Self-Correction Component (SCC) of the Voluntary Fiduciary Correction Program (VFCP), which allows plan sponsors to officially use the DOL’s online calculator for self-correction. This new option is only available for specific errors, such as delinquent contributions deposited within 180 days where the associated lost earnings … Continued

In Summary Unclear Deadlines for 401(k) Deferrals: The Department of Labor (DOL) regulations for 401(k) deferral deposits are unclear, using “earliest” and “reasonably” rather than a firm deadline. While small plans (under 100 accounts) have a 7-day safe harbor, large plans do not. As a result, many large plans adopt a 3-day industry standard, which … Continued

In Summary Funded Plans, the Audit Requirement: The single most important factor determining if a large welfare plan needs a CPA audit is its funding status. If a plan uses a separate trust account (such as a 501(c)(9) VEBA) to hold assets or pay benefits—making it “funded”—it must undergo an audit of the entire plan … Continued

In Summary Designated Roth Accounts Contribution Rules: Participants in 401(k), 403(b), or 457(b) plans can make after-tax contributions to a designated Roth account. These contributions are combined with any pre-tax deferrals to count toward the annual limit ($23,500 in 2025). Unlike Roth IRAs, there are no income caps preventing high earners from contributing to their … Continued

In Summary Counting All Roth Dollars: All Roth contributions a High Earner makes count toward the mandate, regardless of when they are made. This means a participant who contributes a portion of their regular 402(g) limit on a Roth basis might already satisfy the catch-up requirement before their total contributions exceed the 402(g) limit. Plan … Continued