Article | by Geffen Mesher

Employee Benefit Plans (EBPs) are a cornerstone of any well-rounded compensation package. These plans, which can include retirement programs, health insurance, and other essential benefits, not only help attract and retain talent but also serve as a significant component of employees’ long-term financial security. Under the Employee Retirement Income Security Act (ERISA), most EBPs with more than 100 participants must undergo annual audits. This process can feel like a daunting exercise for plan sponsors, but it’s critical for maintaining both legal compliance and employees’ trust.

Background: Regulatory Framework and Compliance Landscape

At the foundation of employee benefit plan regulation is ERISA, a federal law enacted in 1974 to protect participants in retirement and health plans. It is enforced by the Department of Labor (DOL) and the Internal Revenue Service (IRS). Fiduciary responsibilities under ERISA require plan administrators to act solely in the interest of plan participants, follow plan documents carefully, and keep meticulous records. Failing to meet these requirements can lead to serious consequences. Fines and penalties can easily exceed tens of thousands of dollars if practices like timely depositing employee contributions or handling discrimination testing corrections are ignored. In addition, reputational damage can result in employee dissatisfaction and potential legal actions.

Common Issues and Findings in Employee Benefit Plan Audits

Each year, our auditors encounter recurring themes in their audits of EBPs. Preventing and addressing these issues can save your organization from costly fines and significant administrative headaches further down the line. Below are several types of findings that frequently emerge in our audits of benefit plans.

1. Insufficient Document Retention

A comprehensive employee benefit plan audit relies on complete, accurate, and up-to-date records. Missing documentation—such as Form I-9s and enrollment forms—can raise red flags and undermine compliance. Retaining and regularly reviewing these materials ensures that you can demonstrate proper authorization, coverage elections, and other key data when an audit or inquiry arises. Inadequate recordkeeping often leads to time-consuming remediation and possible penalties from regulators who view missing records as a sign of weak internal controls. Keep in mind that it is important to maintain these records even after a participant terminates employment to ensure questions around enrollment, vesting or other compliance issues can be easily resolved. ERISA outlines two key retention requiremenst for employee benefit plan records: (1) records used to support the Form 5500 filing must be maintained for at least six years and (2) records used to determine the benefits due to a participant should be maintained for as long as they may be relevant in estimating the entitled benefits.

2. Late Remittance of Participant Contributions

ERISA mandates that participant contributions, like 401(k) deferrals, be segregated from the employer’s general assets as soon as reasonably possible. Late remittance is one of the most common compliance problems identified during audits because small processing delays can accumulate over time, creating a pattern that an auditor will flag. Establishing a clear remittance policy and leveraging technology—such as automated payroll integration—are effective ways to ensure deposits happen promptly and consistently. Organizations should also have back-up support for those responsible for remitting participant contributions. Even in the event of illness or vacation, the remittances still must be made timely.

3. Compensation Definition Errors

Employee compensation takes many forms—wages, bonuses, commissions, and overtime. If your plan document defines “eligible compensation” but your payroll system calculates contributions using a different definition, you risk under-contributing or over-contributing. Such discrepancies can lead to failed plan testing and possibly trigger corrections or penalties. Ensuring that HR, payroll, and your third-party administrator share a unified understanding of “eligible compensation” is crucial. Regular training and data checks can keep everyone aligned.

4. Inaccurate Calculation of the Vesting Period

Vesting refers to how much of an employer’s contribution an employee “owns” based on years of service. When the records for years of service are inaccurate, it can cause major headaches for both the employer and the participant. People may leave with benefits they aren’t entitled to or, conversely, not receive the full vested amount. These mistakes can become costly if the plan sponsor then has to correct under or over payments. A simple measure, such as verifying service records every quarter or upon a participant’s withdrawal request, significantly lowers the chance of error.

5. Failure to Address Discrimination Testing Failures

Discrimination testing, which includes the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests, is designed to ensure that highly compensated employees do not receive disproportionately higher benefits compared to other employees. If your plan fails these tests and no correction is made—often by issuing refunds to highly compensated individuals or by adjusting plan contributions—the plan could be in serious violation of ERISA guidelines. Monitoring employee contributions frequently throughout the year and communicating with your plan administrator whenever imbalances arise can help prevent larger problems at year-end.

6. Inadequate Documentation of Fiduciary Duties

All decisions regarding plan investments, service providers, or plan amendments must be made with participants’ best interests in mind. Without documentation—such as meeting minutes or internal audit reports—demonstrating how you exercised that duty of care, it’s much harder to prove you acted responsibly. Scheduling regular fiduciary meetings, keeping written evidence of plan-related decisions, and documenting the rationale behind investment choices are ways to create strong audit trails.

7. Inaccurate or Incomplete Employee Census Data

The employee census report is fundamental to an EBP audit. It includes identifying details like dates of birth, hire dates, wage information, and contributions. Inconsistencies between payroll records and the census can make an audit longer and more complicated, potentially uncovering additional plan errors. Frequent reconciliations—either quarterly or monthly—between payroll output and plan records lower the chance of discovering glaring discrepancies in the annual audit.

8. Inadequate Plan Documents and Amendments

Retirement plans evolve. Regulatory changes or shifts in business strategy often require updates to plan documents and summary plan descriptions. If these amendments aren’t promptly documented and integrated, discrepancies can arise in day-to-day plan administration that later show up as audit findings. By reviewing your plan documents annually—especially after any organizational changes—you’ll ensure your operations are consistent with your formal plan language.

Best Practices to Ensure Compliance

Regular audits—both internal and external—can act as the first line of defense against costly EBP errors. Many companies schedule internal reviews or “mini-audits” ahead of the formal process to catch problems early. This also ensures HR, payroll, and any third-party service providers keep in close communication throughout the year. Documenting these processes thoroughly creates a paper trail that demonstrates your diligence.

Benefits of Proactive EBP Audit Preparation

A well-prepared audit, underpinned by organized records and consistent processes, often goes smoothly. You’ll face fewer remedial costs because you’ve identified and corrected issues early, rather than scrambling to fix them after the fact. Best of all, a clean audit fosters trust among plan participants, who can feel confident that their benefits are secure. It also enhances your organization’s reputation with regulators and potential new hires.

How Geffen Mesher & Company Can Help

At Geffen Mesher & Company, our Employee Benefits Plan services are built around the idea that in-depth audits go beyond simply checking boxes for compliance. We recognize that an audit is more than an annual event—it’s an ongoing process of fine-tuning data, aligning with regulatory shifts, and safeguarding your company’s relationship with its most critical asset: its people.

If you’re interested in further guidance or looking to strengthen your existing EBP audit and compliance processes, consider reaching out to a trusted professional services partner. At Geffen Mesher & Company, our experienced team stands ready to help you maintain a compliant, efficient benefits plan that aligns with the best interests of your employees and your organization. A well-executed audit isn’t just an exercise in due diligence; it’s a step toward protecting the financial well-being of everyone involved. We look forward to partnering with you in making your employee benefit plans a success.