Managing an employee benefit plan, such as a 401(k), is a significant responsibility for employers. These plans play a crucial role in supporting employees’ long-term financial goals, which makes it essential to ensure they are properly managed, transparent, and compliant. One of the most important—but often overlooked—components of this process is the employee benefit plan audit.
This audit isn’t just a regulatory formality. It’s a safeguard that helps protect both your company and your employees from financial mismanagement, legal risks, and operational inefficiencies. Neglecting this important step can lead to costly penalties and erode trust between your business and your workforce.
What Is an Employee Benefit Plan Audit?
An employee benefit plan audit is a thorough, independent review of a company’s retirement plan—typically a 401(k)—to verify that it complies with regulations set forth by the Department of Labor (DOL) and the Internal Revenue Service (IRS). The audit examines financial statements, participant records, and plan operations, ensuring accuracy and consistency in areas like contributions, distributions, and plan administration.
Auditors assess whether the plan is meeting the standards set by the Employee Retirement Income Security Act (ERISA) and whether the information reported on Form 5500 aligns with Generally Accepted Accounting Principles (GAAP). Importantly, the audit must be conducted by a qualified, independent accounting firm following Generally Accepted Auditing Standards (GAAS).
When Is an Employee Benefit Plan Audit Required?
Not every plan requires an annual audit. The need for an audit is generally determined by the number of eligible participants in the plan. If a company has 100 or more eligible participants at the beginning of the plan year—even if not all are contributing—an audit is required.
Additionally, the IRS or DOL may mandate an audit if filings are inconsistent or if red flags emerge during a review. Failure to comply with audit requirements can result in penalties, loss of tax benefits, and legal exposure. Monitoring your plan’s participant count and consulting with benefit plan professionals is key to staying compliant.
Why Is an Employee Benefit Plan Audit Important?
An audit of your employee benefit plan provides more than just regulatory peace of mind. It:
- Ensures accurate financial reporting and protects against errors in contributions or account balances.
- Helps detect fraud or mismanagement, safeguarding plan assets and participant benefits.
- Demonstrates a strong commitment to fiduciary responsibility, showing that the employer is acting in the best interest of its employees.
- Builds trust and transparency, enhancing employee confidence in how their retirement funds are managed.
Audits also uncover areas where operations can improve, ultimately contributing to better plan administration and long-term success.
Key Requirements for a Successful Audit
To prepare for an employee benefit plan audit, companies must:
- Ensure all financial statements follow GAAP.
- Provide complete and accurate participant data, including contribution records, loans, distributions, and plan balances.
- Maintain compliance with ERISA regulations, including timely contribution deposits and up-to-date plan documentation.
- Engage an experienced, independent auditor with no conflicts of interest and proven expertise in benefit plan audits.
Being proactive in meeting these requirements can help ensure a smooth and successful audit process.
Partner With DCG for Your Employee Benefit Plan Audit
At DeMar Consulting Group (DCG), we specialize in conducting thorough, efficient employee benefit plan audits for businesses of all sizes. Our team of experts understands the complexities of ERISA compliance, DOL and IRS regulations, and the nuances of proper plan management.
We go beyond simple checklists—our audits provide valuable insights into your plan’s financial health and operational efficiency. By working with DCG, you reduce the risk of penalties, boost internal accountability, and reinforce your commitment to your employees’ financial futures.
Book a free consultation today to learn how DCG can help protect and improve your 401(k) or employee benefit plan through expert auditing services.
