Tips for a Successful Employee Benefit Plan Audit

August 27, 2013

A message for plan sponsors:  Tips for a successful employee benefit plan audit

Offering a 401(k) plan or profit sharing plan is a tremendous benefit for employees. As a plan sponsor, you know that a benefit of this type does come with additional administrative responsibilities in order to operate the plan properly. You also have a fiduciary responsibility to ensure that the plan is compliant with the Department of Labor, IRS, and other regulators. And for those plan sponsors that have at least 100 employees eligible to participate in a plan, than that plan is required to have an audit performed by an independent, qualified CPA firm. An audit will provide reliable and accurate information for all plan participants.

There are many things a plan sponsor can do throughout the entire audit process to help ensure a positive experience. Planning and preparation are the keys to success.


To prepare for the audit, have the following items readily available (many of which can be obtained by your third-party service provider):

  • Plan document, summary plan description, adoption agreement and all amendments.
  • IRS determination letter.
  • List of all parties in interest.
  • Employee census report for all eligible employees.
  • Plan trial balance, financial statements and trust report.
  • SOC 1 report for each service provider.
  • Discrimination test results.
  • Form 5500 with all supporting schedules.
  • Distribution forms and loan documents for all transactions the Plan year.
  • A schedule of deferral remittances made to the trust during the year.
  • Annual payroll registers and reports.
  • Certification from the Plan custodian (applicable to a limited scope audit).
  • All correspondence from the regulatory bodies (DOL and/or IRS) received during the Plan year.

Designate a Contact

Establish a single point of contact with your company for the audit team. By doing so it helps with the flow of communication between with third party administrators, human resources and payroll departments. This person is generally a member of the plan sponsor’s benefits or accounting department or the person with primary responsibility administering the plan. This designated contact can direct auditor requests internally (especially when your company has multiple locations), to the third party administrator and other involved parties, as appropriate. This prevents overlapping or duplicate efforts and keeps the primary contact involved with all communications related to the plan audit.


Another important part of the planning process is to communicate with the audit team key policies and internal control procedures that impact operation of the plan (or any changes to such policies and procedures that had previously been documented), any changes or amendments to the plan document, changes in service providers, and any known or potential compliance issues. An understanding of these items early in the audit allows the audit team to identify and focus on risks pertinent to your plan.

Plan Investments

It is also important to have a thorough understanding of the plan’s investments. If the plan's investments are held by and certified by certain regulated financial institutions (such as a bank, trust company, or an insurance company), you may request that a limited scope audit be performed instead of a full scope audit. The difference between a limited scope audit and a full scope audit relate to the amount of testing performed on the investments and investment income in that additional testing is required in those areas when a full scope audit is performed. The type and complexity of investments in your plan determines the extent of audit procedures and financial statement disclosures required. The planning stage is the time to both determine the scope of the audit, and gather required disclosure information about the plan’s investments from the plan’s custodian or investment advisors. This is especially important if the plan invests in alternative investments, stable value funds, or common collective trusts.


Be prepared with documents the audit team will need for tests of participant and plan-level data. Key testing areas include contributions, participant data, eligibility, an election not to participate, allocations to participant accounts, participant loans, benefit payments, and any other significant plan transactions during the year. Be prepared to sign confirmation letters (this can be performed via email prior to fieldwork as well). Participant confirmations are an effective tool to provide audit evidence of certain demographic data and participant-directed activity. Also, be ready with data regarding the plan’s nondiscrimination testing, forfeitures applied, and any prohibited transactions that may have occurred, such as late remittances of participant contributions to the plan.
At the conclusion of fieldwork, the audit team will provide a comprehensive list of items required to wrap-up any open questions or testing and, together with you, will establish a timeline for completion of these.


Be available for any final questions as draft financial statements are reviewed and comments are accumulated for final edits by all parties. Final audit communication letters will be presented for review. This includes a management representation letter to be signed and returned to the audit team, as well as letters that discuss the audit process and any findings during the course of the audit. At the conclusion of the audit, the financial statements will presented for use in the electronic filing process of the plan's Form 5500.


Work together with your plan’s auditor during the planning stage of the audit and inform them of the plan’s activity for the year being audited. Be prepared for the auditor’s onsite fieldwork and try to conclude the process as soon as possible after fieldwork. Prompt attention to questions that arise over the course of the audit will help complete the audit timely and maximize efficiencies.

At Herbein + Company, we believe that fostering a positive relationship with plan sponsors, plan administrators, and investment advisors will lead to a successful employee benefit plan audit.