According to the Department of Labor’s Employee Benefits Security Administration (EBSA), a 2023 study found that nearly 30% of employee benefit plan (EBP) audits contained major deficiencies. Among the most prevalent problem areas: participant data accuracy (cited in 15.6% of audits) and eligibility errors. For plan administrators and fiduciaries, understanding what drives these issues and how to prevent them is a core compliance responsibility. The encouraging news is that most deficiencies are preventable with the right controls, procedures, and partners in place.
Understanding EBP Audit Requirements
Under ERISA reporting rules, plans generally become subject to the annual audit requirement when they are considered large plans for Form 5500 purposes. For plan years beginning on or after January 1, 2023, large-plan status is determined based on the number of participants with account balances at the beginning of the plan year, with the 80-120 participant rule providing transition relief for certain plans.
These audits verify that the plan is operating in accordance with its governing documents, that participant data is accurate, and that the plan meets applicable regulatory requirements. When deficiencies are found, the consequences can be significant: DOL scrutiny, costly penalties, corrective filings, and damaged participant trust are all on the table.
Why Participant Data and Eligibility Errors Occur
Most deficiencies do not stem from intentional wrongdoing. They reflect the operational complexity of administering a retirement plan when systems and people are out of sync. Common contributing factors include:
- Manual processes and disconnected systems. Reliance on manual data entry increases the risk of human error. When HR platforms, payroll systems, and recordkeeper databases do not communicate automatically, discrepancies are almost inevitable, especially during service provider transitions.
- Inadequate management oversight. Staff turnover creates knowledge gaps. Without regular internal reviews and documented procedures, errors can accumulate undetected.
- Lack of segregation of duties. When a single individual controls multiple aspects of plan administration without independent review, the plan lacks the checks and balances needed to catch mistakes before they become findings.
Common Participant Data Deficiencies
Basic data accuracy issues are among the most frequent findings. Incorrect hire dates, termination dates, and dates of birth can cascade into errors in eligibility determinations, contribution calculations, vesting schedules, and benefit payments. Compensation amounts that do not reconcile to payroll records and inconsistently tracked hours of service create further complications. Documentation gaps compound the problem: missing enrollment forms, outdated beneficiary designations, and absent participant elections all surface during audits.
Common Eligibility and Enrollment Deficiencies
Timing errors are another recurring theme. Employees enrolled too early or too late, missed auto-enrollment windows, and delayed enrollment opportunities are all common findings. Consider a straightforward example: an employee becomes eligible in April but is not offered enrollment until August. That four-month gap may trigger corrective contributions that could have been avoided with a reliable tracking system.
Plan provision misinterpretation also generates significant findings. Confusion over the distinction between “immediate eligibility” and various entry-date provisions, inconsistent application of eligibility rules across employee groups, and failures to properly track long-term part-time (LTPT) employees under the new SECURE Act rules all contribute to audit deficiencies.
Participant data errors rarely exist in isolation. Late remittance of contributions often stems from inaccurate records that delay proper calculations, leading to supplemental payroll runs that are frequently missed or delayed. Incorrect contribution calculations commonly stem from payroll coding issues where pay codes are misaligned with the plan document’s definition of eligible compensation. Distribution and loan errors also connect directly to inaccurate participant data, leading to incorrect benefit calculations and missing documentation.
Prevention Strategies: Building Strong Internal Controls
- Conduct periodic internal reviews. Quarterly or semi-annual reconciliations between HR, payroll, and recordkeeper systems are essential. An annual internal “pre-audit” that tests data accuracy and key controls before the CPA arrives can surface issues while there is still time to address them.
- Invest in adequate training. Every person involved in plan administration should understand eligibility rules, compensation definitions, and their specific responsibilities. Document standard operating procedures and create compliance calendars to standardize key tasks throughout the year.
- Leverage technology and automation. Automated data feeds between systems reduce manual entry errors, and a centralized document management system creates consistent, retrievable records.
- Foster cross-functional collaboration. Clear communication across HR, payroll, finance, and third-party administrators, with a single point of responsibility for tracking eligibility dates, goes a long way toward preventing errors.
Preparing for a Successful Audit
Starting early is one of the most important things a plan administrator can do. Aim to have your payroll census completed by January 31 to stay ahead of testing timelines and Form 5500 deadlines. Reconcile annual contributions from payroll to custodian trust reports in advance and confirm that plan documents are current and reflect all recent amendments, including SECURE 2.0 provisions. During fieldwork, be responsive. Timely answers to auditor questions reduce delays and help resolve issues before they escalate. When findings do occur, take advantage of IRS and DOL self-correction programs (EPCRS and VFCP) and document all corrective actions taken.
The Importance of Experienced Audit Partners
Not all EBP auditors are created equal. EBSA’s research shows a strong correlation between audit quality and the volume of EBP audits a firm performs annually. Firms performing five or fewer EBP audits per year show significantly higher deficiency rates. AICPA Employee Benefit Plan Audit Quality Center members reported a deficiency rate of approximately 30%, compared to 71% for non-members. Choosing a CPA firm with deep, specialized experience in employee benefit plan audits is one of the most impactful decisions a plan sponsor can make.
How Yeo & Yeo Supports Successful EBP Audits
At Yeo & Yeo, our EBP audit team brings specialized expertise and a proactive approach that goes far beyond checking boxes. We work closely with plan administrators throughout the year, not just during audit season, to identify potential issues before they become findings. Our comprehensive audit process focuses on participant data accuracy, eligibility compliance, and operational alignment with plan documents.
We collaborate with your third-party administrators, recordkeepers, and retirement plan advisors to ensure everyone is working from the same information. Because we believe in clear communication and education, we help plan administrators understand what we find and why it matters, so the same issues do not recur. Whether you are preparing for an upcoming audit, looking to strengthen your internal controls, or working through a specific compliance concern, contact Yeo & Yeo to start the conversation.
