Business Articles
What to Expect from an ERISA Audit and How to Prepare
For many growing companies, an employee benefit plan audit becomes a required part of doing business. But for organizations going through the process for the first time—or managing increasingly complex plans—it can also feel unfamiliar and time-consuming.
An ERISA audit takes its name from the Employee Retirement Income Security Act of 1974 (ERISA), the federal law that establishes rules and reporting requirements for employee benefit plans. Common plans subject to these requirements include 401(k) plans, 403(b) plans, pension plans, ESOPs, and health and welfare benefit plans.
An ERISA audit goes beyond reviewing financial statements. It evaluates how a retirement plan operates in practice, including participant eligibility, payroll remittances, distributions, and overall compliance with Department of Labor (DOL) requirements.
Understanding the process ahead of time can help reduce disruption and make the audit significantly more manageable for your team.
When an Audit Is Required
In general, an employee benefit plan audit is required once a plan reaches 100 or more participants with account balances at the beginning of the plan year. This count includes active employees, terminated employees with remaining balances, retirees, and beneficiaries.
Many employers assume the threshold is based on eligibility alone, but the determining factor is participant account balances. Certain exceptions may also apply, including the Department of Labor’s “80-120 participant rule,” which can allow some plans to continue filing as small plans under specific circumstances.
What Auditors Review
An ERISA audit focuses on both financial reporting and operational compliance. Auditors review how the plan is functioning day to day, not just whether balances tie out at year end.
That process often includes reviewing:
- Participant eligibility and enrollment
- Payroll contributions and employer matches
- Timeliness of contribution remittances
- Participant loans, distributions, and Form 5500 reporting
Auditors also evaluate internal controls surrounding payroll processing, HR administration, and communication between service providers. Unlike many traditional financial statement audits, operational compliance testing plays a major role in ERISA audits.
Where Issues Commonly Surface
One of the most common compliance issues involves late remittance of employee contributions.
The DOL expects employee deferrals to be deposited into the plan as soon as administratively feasible after payroll withholding. Delays may require additional reporting and can create unnecessary compliance exposure.
Organizations also commonly encounter issues related to eligibility tracking, census accuracy, employer match calculations, and participant loan processing. In many cases, these problems are not caused by intentional errors, but by disconnected systems or inconsistent procedures between HR, payroll, and third-party administrators.
Preparation Makes a Difference
The most efficient audits typically come from organizations that stay organized throughout the year rather than scrambling once fieldwork begins.
Before the audit starts, it helps to gather:
- Signed plan documents and amendments
- Payroll reports, census data, and TPA reconciliations
- Support for distributions, loans, and prior-year Form 5500 filings
Establishing clear internal contacts across HR, payroll, accounting, and benefits administration can also streamline communication and reduce delays. When responsibilities are clearly defined, requests tend to move much more efficiently.
More Than a Compliance Exercise
While ERISA audits are required for many plans, they can also provide operational value.
A thorough audit can help organizations identify process weaknesses, improve internal controls, and strengthen the accuracy of participant records before issues become larger compliance concerns. For companies with growing plans and expanding workforces, these reviews often provide insights well beyond the audit itself.
Just as importantly, a well-managed audit process helps plan fiduciaries demonstrate oversight and preparedness in an environment where regulatory scrutiny continues to increase.
Working with the Right Audit Team
Employee benefit plan audits are highly specialized, and experience matters.
At Dugan + Lopatka, our dedicated ERISA audit team works with plans across a wide range of industries and participant sizes. We focus on making the process organized, practical, and efficient while helping clients identify compliance risks early and minimize disruption to internal teams.
If your organization is preparing for an upcoming employee benefit plan audit or evaluating its current process, we’re here to help.