Common ERISA Audit Findings and How to Avoid Them

ERISA plan audits continue to flag many of the same issues every year, with late participant contributions and errors in participant data being among the most common problem areas. Those types of findings can lead to costly penalties and follow-up with regulatory agencies. They can also weaken trust among employees who rely on the plan for retirement savings. Most of these problems are preventable. With clear procedures and internal controls, plan administrators can spot issues early and demonstrate they are meeting fiduciary responsibilities. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

What are ERISA Audits?

An ERISA audit is an independent review of employee benefit plan (EBP) financial statements and key operations. It is performed by an outside CPA firm and is generally required for large plans, based on the 80–120 rule. The auditor looks at how funds come into the plan through employee and employer contributions, how benefits and loans are paid out, how participant data is maintained, and whether day-to-day activity matches the written plan document.

Common ERISA Audit Findings and Prevention Strategies

Late Remittance of Employee Contributions — One of the most common findings involves the timing of employee deferrals. Once contributions are taken from pay, they need to be moved into the plan as soon as it is reasonably possible to separate them from the employer’s general bank account. Even short delays may be treated as violations. A written remittance timeline that ties deposit dates to each payroll, along with tools like automated transfers, can help plan administrators avoid this problem.

Incomplete or Inaccurate Participant Data — These are basic data errors. Common examples include wrong hire or termination dates, incorrect dates of birth, and pay amounts that do not match the payroll system. Those mistakes can lead to errors in eligibility, contribution amounts, vesting, and benefit payments. Standardized procedures for entering and updating information, combined with regular reconciliations between HR systems and payroll help keep participant data up-to-date and reduce the risk that input errors turn into larger compliance issues.

Improper Eligibility Determinations — Eligibility problems happen when employees are enrolled in the plan too early, too late, or not at all, including long-term part-time (LTPT) employees who now qualify in certain circumstances under new rules. For example, let’s say an employee becomes eligible for benefits in April but isn’t offered enrollment until August. Those missed contributions would need to be corrected. Posting eligibility rules and having a single place to track eligibility dates can help ensure people are offered enrollment on time.

Failure to Follow Plan Document Terms — This often happens when the law changes and the plan follows the new rules before the document is updated. SECURE 2.0 is a recent example, where many sponsors made good-faith operational changes but delayed or missed amendments. By implementing short reviews that compare daily procedures to the plan document administrators can help to stay ahead of any potential issues.

Inadequate Documentation — Auditors often see missing enrollment forms, opt-out confirmations, loan applications, and distribution approvals, as well as outdated plan documents and summary plan descriptions. A basic document management system that groups plan records in a consistent way, along with clear retention rules, makes it easier to show how decisions were made. Digitizing key forms and backing them up in a secure system helps ensure that required records are easy to locate when questions come up.

Errors in Form 5500 Reporting — This often involves missing or incomplete forms, amounts that do not match the plan’s financial statements, or late filings. Penalties for failing to file Form 5500 can reach $2,739 per day. Preparing the form from reconciled year-end records, reviewing it alongside the financial statements, and tracking the Form 5500 deadline (usually July 31 for calendar-year plans) helps reduce this risk.

Nondiscrimination Testing Issues — Plans that offer salary deferrals and matching contributions must meet nondiscrimination testing requirements that compare benefits for highly compensated employees (HCEs) to those for other employees. If those tests fail and the plan does not correct the issue properly or in a timely way, auditors will note it as a finding. It’s best practice to monitor participation and contribution levels during the year, rather than waiting for a year-end surprise. That way it can be corrected ahead of any audit. Be sure to document corrections, such as refunds or extra contributions.

Next Steps for Plan Administrators 

Plan administrators who want to strengthen audit readiness can first focus on a few areas of highest-impact

• Make sure staff understand the plan’s eligibility rules, compensation definitions, and key procedures.
• Document policies and procedures for contributions, eligibility, distributions, and record retention.
• Use checklists and compliance calendars.
• Where possible, leverage technology and automation to standardize processes and reduce manual errors.
• Conduct regular internal reviews and an annual internal “pre-audit” to test data and key controls.
• Stay informed about regulatory changes, especially with SECURE 2.0 in play.
• Work with qualified professionals. Plan administrators are encouraged to work with experienced third-party administrators, ERISA attorneys, and advisors.

Contact Us

ERISA audits pull back the curtain on how well a plan complies with many different laws and regulations. By understanding common ERISA audit findings and putting prevention steps in place, plan administrators can reduce the risk of costly corrections and protect both the organization and its participants. If you have questions about the information outlined above or need assistance with your next benefit plan audit, JLK Rosenberger can help. For additional information call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.