If you’ve ever faced an employee benefit plan (EBP) audit, you know the experience can range from smoothly efficient to painfully chaotic. The difference rarely comes down to the complexity of your plan—it’s almost always about preparation. Organizations that invest time upfront in gathering documents, reconciling data, and organizing records tend to breeze through the process. Those who scramble often face delays, mounting follow-up requests, and lingering anxiety about what issues might surface.
The stakes are higher than many organizations realize. A 2023 Department of Labor study found that 30% of employee benefit plans had one or more major deficiencies. The good news? Most audit challenges are entirely preventable with proper preparation and the right expertise guiding the process.
Start Early
One of the most common mistakes organizations make is waiting too long to begin audit preparation. Plan audits require examining financial reports from third-party payroll companies, internal finance teams, and recordkeepers. Starting three to four months before your Form 5500 filing deadline gives you adequate time to identify and resolve issues before they become urgent problems.
A critical early milestone is completing your payroll census by January 31. Missing this deadline can create a domino effect of delays throughout the year, increasing the likelihood of errors and rushed filings.
Organize Core Documents
Before fieldwork begins, gather and organize all core plan documents: your signed plan document and amendments, summary plan descriptions, trust agreements, investment policy statements, prior year Form 5500 filings, board resolutions related to plan changes, and all service provider agreements. Whether you maintain physical or electronic records, documents should be easily retrievable. Delays in producing documentation often raise red flags with auditors, suggesting inadequate governance or weak internal controls. Quickly providing well-organized records, on the other hand, signals confidence and proper oversight.
Reconcile Financial Records Ahead of Time
Financial accuracy forms the backbone of any EBP audit, and this is where preparation makes the most dramatic difference. Pull and organize payroll reports for the entire plan year by pay period. Gather contribution remittance reports, your year-end audit package from your recordkeeper, bank statements, and custodian trust reports. Compile documentation for every participant distribution, loan, and hardship withdrawal during the year.
Most importantly, reconcile annual contributions withheld from payroll to the contributions actually deposited in the custodian’s trust account before auditors arrive. Waiting until fieldwork to do this inevitably surfaces discrepancies that need investigation on the spot. Completing this reconciliation in advance allows you to identify and resolve issues proactively.
Pay special attention to supplemental pay runs. These often create problems because contributions may not have been withheld, or amounts were withheld but not remitted on time. The Department of Labor requires that employee deferrals and loan repayments be transferred to the plan as soon as administratively feasible, typically within a few business days of payroll. Late deposits are treated as prohibited loans from the plan to the employer and require correction with lost earnings, creating unnecessary administrative burden and potential costs.
Review Participant Data Carefully
Accurate participant data is another area where thorough preparation prevents complications. Review your census data for accuracy in hire dates, termination dates, birthdates, and reported compensation. Confirm that your definition of eligible compensation aligns with your plan document. A common audit finding involves employers incorrectly excluding bonuses or overtime that the plan document includes. These errors can lead to contribution shortfalls, expensive corrective contributions, and potential plan disqualification.
Also, verify that payroll codes match plan document requirements, review eligibility determinations for part-time or rehired employees, confirm auto-enrollment was applied timely for newly eligible participants, and identify any terminated participants with account balances that should have been distributed.
Coordinate the Right People
Even perfect documentation won’t guarantee a smooth audit without proper coordination. Designate a single point of contact for all audit inquiries, typically your plan administrator, HR director, or CFO. Also, identify supporting personnel who can handle specific questions: HR staff for eligibility matters, payroll administrators for compensation and withholding, and finance team members for contribution processing. Provide your auditor with contact information for all service providers and access to relevant portals. Most importantly, ensure key personnel are available and responsive during fieldwork. Prompt responses keep the engagement moving forward and signal strong governance.
How Yeo & Yeo Can Help
Navigating employee benefit plan audits requires specialized expertise beyond general accounting knowledge. At Yeo & Yeo, our team includes experienced professionals who specialize in EBP audits and understand the complexities of ERISA compliance, Department of Labor requirements, and IRS regulations.
Our collaborative approach means we work closely with your retirement plan advisors and internal teams throughout the process, not just during fieldwork. We help you organize documentation, guide you through proper reconciliation procedures, and proactively identify compliance issues before they become costly problems.
