Employee Benefit Plan Audits: Why You Need One & How to Find the Right Auditor

Feb 13, 2023 | Employee Benefits


Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut faucibus nisi euismod dapibus consequat. Suspendisse sem purus, commodo a porta lobortis, consectetur sit amet metus.

You just put the finishing touches on your employee benefit plan for your company. 

The only question now is…

…what’s next? 

Does your EBP need an audit? If it does, how are you going to find a qualified auditor? 

And more importantly: are employee benefit plan audits even important? 

First of all—yes. They’re absolutely necessary for most companies. 

The only trouble is: 39% of audits are completed incorrectly according to a 2011 DOL study

But you’re not an auditor, you’re just the plan administrator! How are you supposed to know if your audit is deficient or not? 

Don’t worry—we’ll get to that (and much more) in just a moment. 

But first, let’s figure out if you need an employee benefit plan audit in the first place. 

Read This First…Do You Need an Employee Benefit Plan Audit?

Before we go any further…

…it’s important to note that not every company with an Employee Benefit Plan (EBP) requires an official audit.

According to DOL regulations, most EBPs with 100 or more eligible employees must submit audited financial plan statements when they file an annual Form 5500. 

But there are a couple of exceptions. 

If your EBP: 

  • Falls into the “small” category (less than 100 eligible employees)
  • Was recently implemented (seven months or less)
  • Was recently terminated 

Then your EBP may be exempt from and/or can delay the Employee Benefit Plan Audit process. 

There’s also an exception called the 80-120 Rule

The 80-120 Rule states that any plan with 80-120 eligible employees filing Form 5500 on the first day of the plan year can file in the same “size category” from the previous year. (Meaning, you can still treat yourself as a “small” company if you did so last year.)

So, if your plan fell into the small category last year but has since moved into the large category, you can still file in the small category and avoid an Employee Benefit Plan Audit temporarily. 

Just remember to review your plan before moving forward with the auditing process—you may not even need one in the first place. 

What Is an Employee Benefit Plan Audit?

employee benefit plan audits

An Employee Benefit Plan Audit (or EBPA) ensures that the plan’s financial statements are accurate in order to deliver the designated benefits/funds to eligible employees in a company. 

There are four common EBPA types according to the FDIC: 

  1. Defined benefit plans—these plans pay employees a certain amount after they retire. 
  2. Employee welfare plans—these plans provide employees with medical, health, and hospitalization benefits. 
  3. Defined contribution plans—these plans allow for tax-deferred contributions that participants can access at a later date. 
  4. Keogh plans—these plans are used by self-employed individuals to make tax-deferred contributions that participants can access later. 

The Department of Labor (DOL) requires that only licensed, independent auditors from CPA firms conduct EBPAs due to their complexity and to ensure standards set by the DOL and IRS are met. 

Annual EBPAs are typically due seven months after your plan year ends (July 31st for most), but by filing IRS Form 5588, companies can extend their EBPA due date for an additional 2 ½ months. 

Let’s go over a quick checklist from the DOL to guarantee you’re prepared for your EBPA. 

You’ll need to: 

  • Review your auditor’s engagement letter (the document that specifies their responsibilities, the timeline of the work, their fees, etc.) 
  • Provide any necessary records to the auditor (financial, accounting, etc.) 
  • If using a third-party record-keeping service, ensure they have what they need to make your records available to the auditor 

What Are the Benefits of an EBP Audit for Your Company?

1. Guarantee Benefits for Your Employees 

Mistakes happen. No one’s perfect, and it’s not uncommon for a decimal to get misplaced or an error to be left unchecked in a benefit plan. 

The problem is…

EBPs carry high stakes for your employees. 

One mistake could mean a failure to accurately deliver funds, failure to get specified benefits, or serious legal consequences for your company. 

EBPAs help ensure that your employees are receiving the benefits you promised them. 

2. Determine Your Plan’s Strengths and Weaknesses 

Think of your employee benefit plan audit like a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). 

Your auditor is trying to determine the strengths and weaknesses of your plan’s ability to deliver on its promises, control potential risks, and set itself up for the best chance of success for you and your employees. 

They’ll also check for internal controls over financial reporting and operational errors. 

3. Improve Plan Management and Operations

EBPAs can help improve plan management and your ability to optimize plan operations. It confirms that you’re fulfilling your legal responsibilities as the plan administrator (such as filing your Form 5500), and serves as a stamp of approval to the DOL. 

How to Find the Right Auditor for Your EBP Audit

The DOL lists three main qualities to search for in an auditor: 

  • Licensed or certified 
  • Independent 
  • Prior training and experience in auditing EBPAs

1. Your auditor should be licensed 

The DOL requires your auditor and/or CPA firm to be licensed or certified as a public accountant by a State authority.

This ensures each auditor is following the DOL and ERISA regulations and standards as they complete your audit. 

It’s also common practice for auditors’ work to be peer-reviewed by other licensed auditors. 

2. The auditor should be independent 

Though most CPA Firms are required to be independent, there are many instances in which this is not the case.

According to Michael Rapoport in his article, “The Way Audits Work is About to Change,” regulators found that one-third of Big-Four audits were compromised in this way

Double-check that your CPA Firm and/or auditor are completely independent to avoid any bias or conflicts during the auditing process. 

3. Your auditor should have prior training/experience in auditing EBPAs

The DOL recognizes that some of the most common EBPA mistakes are due to the auditor’s lack of experience in audits specific to employee benefits. 

When selecting an auditor, it’s important to consider the amount and quality of their experience in auditing employee benefit plans. A successful audit is dependent on the auditor’s ability to accurately check for regulations specific to employee benefits. 

Warning! If Your EBP Audit Isn’t Completed in Time, It Could Mean…

Now that you know what an employee benefit plan audit is and why it’s necessary to complete one, let’s talk about what might happen if a company fails to conduct their audit. 

As the plan administrator, you could be looking at serious civil penalties such as: 

And if the audit you submit is deemed deficient by the DOL—nearly 39% of investigated audits in 2011—then you’re liable to face civil penalties, too. 

This might mean: 

  • $150 daily charges with a $50,000 max for deficient audits 
  • $100 daily charges with a $36,500 max when the audit contains deficient financial information 

In other words: submit your employee benefit plan audit on time. And make sure your auditor is experienced and peer-reviewed to avoid deficiencies and potential charges from the DOL. 


We hope you’re leaving with a better understanding of the employee benefit plan audit process, and what makes them so vital to a company’s overall efficiency and success. 

But one more thing before you go: 

If you happen to be a smaller company that’s struggling to add more insurance coverage for their employees, you might consider Abenity’s Fortune 500 perks and discounts

It gives smaller companies every opportunity to compete and offer their employees the benefits they deserve. This is why the perks packages aren’t only customizable based on your budget, but also allow you to stretch your payroll by $4,500 per employee! 

Related Articles