Are You Prepared for your Employee Benefit Plan Audit?

As Form 5500 filing deadlines approach (extended due date of October 15 for calendar year plans), plan sponsors, administrators, recordkeepers, and auditors need to work together to gather information and evaluate plan operations for the year.  As noted below, some plans required audited financial statements to be attached to the Form 5500.

One of the most common causes of delays during an EBP audit is incomplete or disorganized documentation. Understanding what auditors review, and preparing those documents in advance, can help streamline the audit process, reduce follow-up requests, and make the experience significantly more efficient for everyone involved.

More importantly, maintaining complete documentation throughout the year helps demonstrate that the plan is operating in accordance with its governing documents and ERISA requirements.

When Is an EBP Audit Required?

EBP audits are generally required under the Employee Retirement Income Security Act (ERISA) for plans that file as large plans on Form 5500. In general, plans with 100 or more participants at the beginning of the plan year are subject to the audit requirement, subject to applicable Department of Labor rules. Plans subject to the audit requirement must include audited financial statements with their annual Form 5500 filing.  

The Department of Labor places significant emphasis on fiduciary responsibilities, making accurate recordkeeping and plan administration critical. As a plan sponsor, you are ultimately responsible for ensuring the plan operates in accordance with plan provisions and applicable regulations.  

Why Preparation Matters

A well-prepared audit offers several benefits:

• Reduces the time and cost associated with the audit process

• Minimizes requests for additional documentation

• Identifies operational or compliance issues before they become larger concerns

• Strengthens internal controls over plan administration

• Improves confidence among participants, regulators, and stakeholders

The most successful audits are rarely the result of last-minute preparation. Instead, they are supported by organized records, clear communication with service providers, and an understanding of what auditors will be testing.

Before Fieldwork Begins: Understanding Your Audit Package

One of the first requests auditors make is for the plan's annual audit package. Many trustees, recordkeepers, and third-party administrators (TPAs) prepare a year-end audit package specifically for auditors. Providing these reports early can significantly reduce follow-up requests and help keep the audit moving efficiently.

The audit package typically includes the following:

• Year-end trust statements

• Certification of investment information

• Participant census information

• Participant account balance reports

• Contribution reports

• Distribution reports

• Loan activity reports

• Rollover reports

• Investment activity and income reports

• Schedule of assets held at year-end

• SOC 1 reports for the trustee, recordkeeper, or TPA

These reports form the foundation of the audit and support most of the plan's financial information that is ultimately reported on the Form 5500. In many cases, the TPA coordinates the preparation of census data, contribution calculations, compliance testing results, and other reports used during the audit.

Information Typically Provided by the Plan Sponsor

While much of the financial information comes from the audit package, the plan sponsor is still responsible for providing documentation that supports plan operations.

Plan Governance Documents

Auditors will typically request:

• Current plan adoption agreement  

• Any related amendments to the adoption agreement

• Summary plan description

• Trust agreement

• IRS determination letter

• Committee or fiduciary meeting minutes related to plan oversight

• Documentation about the plan’s processes and internal controls

• Fidelity bond covering the year under audit

These documents help auditors understand the plan's provisions and operations and determine whether transactions were processed appropriately.

Payroll and Administrative Records

Plan sponsors should also be prepared to provide:

• Form W-3

• Annual payroll summary report

• Detailed payroll register for the year

• Employee census file

• Employer contribution calculation for the year

• Schedule of when contributions were remitted to the plan

These records allow auditors to trace payroll activity to participant accounts and verify that contributions were calculated and deposited appropriately.

Participant Eligibility Testing

Before reviewing participant transactions, auditors seek to understand the plan population and determine whether employees entered the plan according to its provisions.

What Auditors Are Reviewing

Auditors want to verify that:

• Eligible employees were allowed to participate at the correct time

• Participant information is complete and accurate

Documents to Have Ready

• Documentation for date of birth, date of hire, date of termination

• Signed enrollment forms showing whether the employee chose to enroll or decline participation in the plan

Why These Documents Matter

Eligibility errors remain among the most common operational issues identified in retirement plans. These records help demonstrate that employees have the opportunity to participate in the plan when eligible.

Participant Compensation and Contribution Testing

Once participant eligibility has been reviewed, auditors typically focus on compensation and contributions. This testing helps verify that employee deferrals and employer contributions were calculated accurately and deposited to the plan in a timely manner.

Because compensation serves as the basis for many plan contributions, payroll records are often among the most heavily reviewed documents during an EBP audit. Auditors use these records to trace participant activity from payroll elections all the way through to deposits in the trust and allocations to participant accounts.

What Auditors Are Reviewing

Auditors typically verify that:

• Compensation was calculated in accordance with the plan document  

• Eligible compensation was included in contribution calculations  

• Employee deferral elections were properly applied through payroll  

• Employee contributions agree to payroll records  

• Employer matching, safe harbor, or profit-sharing contributions were calculated correctly  

• Contributions were deposited timely  

• Contributions were allocated properly among participant accounts

Documents to Have Ready

• Employee payrate authorization for the year under audit

• Employee deferral election reports

• Employer matching or safe harbor contribution calculations

• Contribution remittance reports

Why These Documents Matter

These records allow auditors to trace participant and employer contributions from payroll records to participant accounts and ultimately to deposits reflected in the trust. They also help verify that participant contributions and employer matches were calculated correctly and recorded accurately.

In addition, the Department of Labor continues to focus on the timely remittance of employee deferrals, making contribution testing one of the most important areas of every EBP audit. Having payroll and contribution reports readily available can significantly reduce follow-up requests and help keep the audit on schedule.

Participant Distribution Testing

Because distributions represent assets leaving the plan, they are typically among the most heavily tested transactions during an EBP audit.

What Auditors Are Reviewing

Auditors seek to determine whether:

• The participant was eligible to receive the distribution

• The transaction complied with plan provisions

• The amount distributed was accurate

• The payment was properly recorded

Documents to Have Ready

For each selected distribution, auditors will commonly request:

• Documentation for date of birth, date of hire, date of termination

• Approved distribution request forms

• Beneficiary designation documents, when applicable

• Hardship withdrawal support, if applicable

• Form 1099-R

• Check copies, ACH confirmations, or wire support

Why These Documents Matter

These records provide evidence that the participant qualified for the distribution and that the transaction was processed accurately under the provisions of the plan.

Participant Loan Testing

If the plan allows participant loans, auditors will typically select a sample and verify compliance with both plan provisions and IRS requirements.

What Auditors Are Reviewing

Auditors seek to verify that:

• The loan was permitted under the plan

• Loan limits were not exceeded

• Repayment terms complied with plan requirements

• Loan payments were being made according to schedule

Documents to Have Ready

For each selected loan, auditors may request:

• Loan application and approval documentation

• Signed promissory note

• Loan amortization schedule

• Documentation supporting any loan defaults or deemed distributions

Why These Documents Matter

These documents help establish that the loan was properly authorized, issued within allowable limits, and administered according to plan provisions.

Rollover Testing

Auditors commonly review both incoming rollover transactions to ensure assets were properly transferred and recorded.

What Auditors Are Reviewing

Auditors typically verify that:

• Rollover funds originated from an eligible retirement plan

• Participant authorization was obtained

• Assets were properly deposited or transferred

• Transactions were recorded accurately in participant accounts

Documents to Have Ready

For incoming rollovers:

• Rollover contribution authorization forms

• Check copies or wire confirmations

• Deposit confirmations

Why These Documents Matter

Auditors must be able to trace the movement of assets and verify that rollover transactions comply with applicable plan and regulatory requirements.

A Well-Prepared Audit Benefits More Than Compliance

Organizations that begin gathering documentation before fieldwork starts often experience shorter audit timelines and fewer follow-up requests. In many cases, delays occur not because of accounting issues, but because supporting documentation is difficult to locate after the fact.

Working with your payroll provider, TPA, and recordkeeper to assemble a complete audit package before auditors arrive can significantly reduce the administrative burden on your internal team and help keep the audit on schedule.

More importantly, a successful audit provides confidence that participant accounts are being administered properly, fiduciary responsibilities are being fulfilled, and the plan is operating in accordance with its governing documents. By understanding what documentation auditors need, and gathering it before fieldwork begins, plan sponsors can turn audit season into a more efficient and productive process.

How HHM CPAs Can Help

HHM CPAs' EBP Audit team understands the unique challenges plan sponsors face during the audit. Our professionals work closely with clients to provide clear communication, streamlined request lists, and practical guidance throughout the audit process.

If your organization is preparing for an EBP audit, the HHM team can help you navigate documentation requirements, identify potential compliance concerns, and make the audit process as efficient as possible. Contact us today to learn more about our EBP Audit services.