Compliance image As moreemployers continue to turn to brokers and consultants to deliverbenefits solutions, these professionals, too, can do their parts tohelp their clients stay compliant when it comes to employee benefitplan audits. (Photo: Getty)


If you're like most plan sponsors, an audit of your employeebenefit plan is never something you look forward to. However, it'simportant to both your company and your plan participants. Toensure a smoother audit, you need to be aware of―andrectify―errors. As you are administering your plan throughout theyear, watch out for these common mistakes that can potentially landyou in hot water.

  1. Definition of compensation: This continues tobe one of the largest issues in benefit plan audits. Plan sponsorsshould carefully review the plan document to make sure theyunderstand how compensation is defined under their plan and thatpayroll codes are set up properly to either include or excludevarious types of compensation.
  2. Timely remittance of employee deferrals: Plansponsors should ensure consistency when it comes to remittingemployee deferrals. There is no safe-harbor rule for large planfilers when it comes to remittance. Keeping a schedule throughoutthe year that tracks when contributions are remitted is a greattool.
  3. Eligibility: Eligibility is defineddifferently among plans and sometimes differently depending on thetype of contributions. As a plan sponsor, you should make sure thatemployees have met the eligibility requirements before beingenrolled into the plan and contributions begin.
  4. Administrative matters: As a best practice,plans should have a designated committee that meets regularly todiscuss the plan. In these meetings, minutes should also be takento document what was discussed, and any actions taken for theplan.
  5. Vesting: Errors in this area result in eithertoo much or too little being forfeited. Plan sponsors may rely onthe recordkeeper to track vesting percentages. Plan sponsors shouldunderstand that they are ultimately responsible for the plan andshould also review vesting for participants even if it is beingcalculated by a third-party service provider.
  6. Forfeitures: Often plans are not using thesefunds timely or are using them incorrectly. Be sure that your planforfeitures are being used timely and in accordance with the plandocument.
  7. Distributions: Distributions need to be madein accordance with the plan document and to the correct, eligibleparticipant in the plan. If the plan sponsor is responsible forapproving any type of distribution out of the plan, processes needto be in place and monitored to ensure that these distributions arebeing reviewed accordingly.
  8. Manual employer contribution calculation: Thisis becoming less common in plans. However, some plans still performtheir own matching calculation in a spreadsheet. A simple error inthe spreadsheet can cause the entire calculation to be wrong.Having review procedures in place to ensure the accuracy of thisinformation can help prevent costly errors to the plan.
  9. Participant elections: When a participantelects to change their deferral amount, the plan sponsor shouldensure that these changes are made as soon as administrativelypossible, usually by the next payroll cycle. Checks should beperformed throughout the year to ensure that any deferral changesare going through the proper channels and being implemented timelyand correctly.
  10. Understanding service provider contracts: Moretasks are being outsourced to third-party service providers. Plansponsors should review contracts with all service providers to makesure they know what responsibilities still fall onto the sponsor.It is also important to review these contracts to understandinvestment offerings and any fees that may be charged.

Benefits brokers play a role, too

As more employers continue to turn to brokers and consultants todeliver benefits solutions, these professionals, too, can do theirparts to help their clients stay compliant when it comes toemployee benefit plan audits. As a benefits broker, you can helpyour clients significantly as they navigate the ins and outs ofplan requirements throughout the year. Below are three ways you canhelp your clients remain on top of their plans that could helpencourage participation, compliance, and smoother audits:

  1. Ensure clients understand plan documents:Compliance errors happen more frequently due to lack ofunderstanding of the plan document or not following the plandocument correctly. The plan document is the roadmap for runningthe plan. As an advisor, you should be reviewing with the plansponsor frequently to make sure it is up to date with currentlegislation.
  2. Make sure clients understand fiduciary responsibilityand liability: Often, the plan administrator at the plansponsor is unaware that they are a fiduciary of the plan. Planadministrators should know this and seek advice from their advisoras to what this liability entails.
  3. Check on retirement readiness: Are planparticipants ready to retire? How is the employer helping them stayinformed of the 401(k) plan and what it has to offer? Plan sponsorsshould ensure that they are properly educating participants on theretirement plans their company offers.

Those benefits brokers who bring this type of value-addedconsultation to their clients are most likely to maintain thoserelationships and build new ones in the process.


Anne Morris, CPA, is principal and employeebenefit plan practice leader at Windham Brannon,P.C.

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