Demystifying Your First Employee Benefit Plan Audit | A Guide for Plan Sponsors

Published on November 5, 2026 by Jackson Weyler in Benefit Plan Audits

Article Summary

Know when an audit is required: Defined contribution plans generally require an audit at 100 participants with account balances, subject to certain exceptions.
Understand the 80-120 rule: Plans that previously filed as small plans may qualify to continue doing so with up to 120 participants with account balances.
Get organized early: Gather plan documents, payroll records, service provider reports, and participant information to streamline the audit.
Avoid common compliance errors: Review contribution timing, compensation definitions, employee deferrals, and automatic enrollment procedures.
Choose an experienced EBP auditor: Specialized expertise can simplify the process, identify potential issues, and help strengthen plan administration.

Your organization is growing, your team is thriving, and you’ve reached another important milestone: your first employee benefit plan (EBP) audit.

While preparing for an audit may seem daunting, it doesn’t have to be. Understanding what’s required, gathering the right documentation, and knowing what to expect can make the process much smoother.

To help you prepare with confidence, we’re answering the questions plan sponsors ask most often about their first EBP audit.

Do I need an employee benefit plan audit?

Under ERISA, defined contribution plans, including most 401(k) and ERISA-covered 403(b) plans, generally require an annual audit when they have 100 or more participants with account balances at the beginning of the plan year, subject to the 80-120 participant rule and other applicable exceptions.

Effective for plan years beginning on or after January 1, 2023, this threshold is based on participants with account balances rather than all employees eligible to participate.

We see a lot of first-time clients get confused about two specific nuances:

The 80-120 participant rule: If your defined contribution plan had between 80 and 120 participants with account balances at the beginning of the previous plan year and filed as a small plan the previous year, you may continue filing as a small plan, generally avoiding an audit until the count exceeds 120.
Who counts toward the audit threshold? For defined contribution plans, only participants with account balances are counted. This includes active employees, former employees with remaining balances, and deceased participants with beneficiary accounts. Eligible employees without account balances are excluded.

What documents will my employee benefit plan auditor ask for?

Gathering documentation early prevents audit delays and minimizes disruption to your day-to-day operations. Your auditor will typically request documents in three main categories:

1. Governance & plan structure

Signed plan document, adoption agreement, and all amendments
IRS favorable determination or opinion letter
Form 5500 filings from prior years
Summary plan description (SPD) and summary material modifications (SMM)
Plan-related meeting minutes and committee records
Correspondence with the IRS or DOL, including any prior compliance issues or corrections

2. Operational & service provider documentation

SOC 1 Type 2 Report: Issued by your service provider (e.g., Fidelity, Vanguard, ADP) to demonstrate that their specified internal controls are operating effectively.
Year-end trust statements and census reporting from your Third-Party Administrator (TPA) or Recordkeeper.
Fidelity bond coverage documentation.

3. Employee-level testing files

Auditors select a sample of participants to test compliance. You will need to provide:

Payroll registers and Form W-2s
Demographic records (hire date, birth date, termination date)
Participant distribution and loan request documentation
Salary deferral election forms or auto-enrollment confirmations

How can I prepare for a smooth EBP audit?

To keep your audit on schedule and within budget:

1. Designate a point person

Assign a primary internal manager (usually in HR or Accounting) to coordinate requests between your auditor, payroll team, and TPA.

2. Request SOC 1 reports early

Reach out to your service providers early in the process to obtain their latest SOC 1 Type 2 reports and review the user control considerations.

3. Conduct an internal pre-audit

Before fieldwork begins, compare your plan’s actual operations with key provisions of the plan document. Pay particular attention to eligibility and entry dates, the definition of compensation, employer matching provisions, participant deferral elections, automatic enrollment, and the timing of contribution deposits.

What are the most common audit findings?

First-time audits frequently uncover operational errors that occurred simply because plan rules were misinterpreted, or payroll systems were improperly configured. Being proactive in these areas can save your organization time and money.

Late remittance of deferrals

Employee contributions must be deposited into the plan as soon as they can reasonably be segregated from the employer’s general assets. A plan’s historical deposit practices can be important in determining how quickly contributions can reasonably be remitted. Late deposits may constitute prohibited transactions and can require correction, including the restoration of lost earnings.

Incorrect definition of compensation

Plans must use the compensation definition specified in the plan document when calculating employee deferrals and employer contributions. Problems can arise when payroll improperly includes or excludes items such as bonuses, commissions, overtime, fringe benefits, or other forms of compensation. Comparing payroll configurations with the plan document’s definition of compensation can help identify these issues before they affect participant accounts.

Failure to properly implement participant elections

Deferral elections and subsequent changes must be implemented accurately and timely. Incorrect withholding percentages, missed election changes, or payroll setup errors can result in participants contributing more or less than intended and may require corrective contributions or other action.

Failing to follow auto-enrollment rules

If your plan features automatic enrollment, failing to default eligible employees at the correct percentage or date can result in required employer corrective contributions.

What happens if your audit uncovers errors?

Finding an error doesn’t necessarily mean your plan is facing significant penalties. Many plan errors can be corrected through established IRS and DOL correction programs or other available correction methods, depending on the issue.

Depending on the circumstances, corrections may involve employer contributions, missed matching contributions, lost earnings, amended filings, or other corrective steps. Identifying and addressing issues promptly can help minimize costs and protect participants’ retirement benefits.

Why does choosing the right employee benefit plan auditor matter?

Selecting an experienced EBP auditor who understands ERISA requirements and DOL guidelines can make a meaningful difference. The right auditor brings specialized knowledge, helps your team navigate the audit process, identifies potential compliance issues, and provides insights that can strengthen plan administration.

While the plan administrator remains responsible for Form 5500 filing and correcting any identified errors, an experienced audit team can help make the process more efficient and provide greater confidence in your plan’s financial reporting.

Questions about your upcoming Employee Benefit Plan audit? Reach out to our audit team today to schedule an initial consultation and request a customized audit preparation checklist. As always, we’re here to help.

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