The Importance of Employee Benefit Plan Audits

In today’s competitive labor market, employers aim to attract and retain top talent by offering an array of health and wellbeing benefits, including retirement plans, including defined contribution plans (e.g., 401(k), profit-sharing), defined benefit plans (e.g., pension, cash balance), and health and welfare plans (e.g., retiree health, dental and prescription benefits).

As these plans grow in complexity and scope, confirming they are managed and administered responsibly becomes critical.

Why is this Important?  

Audits play a vital role in helping organizations maintain trust and transparency. Key reasons supporting the significance of audits are discussed below.

• Compliance with federal regulations: A primary reason to conduct employee benefit plan audits is to comply with federal laws, particularly the Employee Retirement Income Security Act of 1974 (ERISA), which mandates that plan fiduciaries act prudently and in the best interest of plan participants. It also requires that a defined contribution plan with 100 or more participants who have account balances as of the first day of the plan year, or other types of plans with 100 or more participants, be audited annually by an independent qualified public accountant. A 2015 study by the U.S. Department of Labor (DOL) found that 39% of audits had major deficiencies, putting over $653 billion in assets and millions of participants at risk. The most recent study showed a 30% overall deficiency rate for plan audits. These findings underscore the critical need for high-quality audits. To meet its fiduciary responsibility, an employer should, as a best practice, consider evaluating an audit firm s relevant experience and qualifications in auditing the plans.
• Enhancing financial integrity: Employee benefit plans manage vast sums of money. A benefit plan audit provides an independent assessment of a plan s financial health, including its internal controls and reporting practices. Auditors perform procedures related to the financial statements, including the underlying transactions and controls, to determine whether plan assets are completely and accurately recorded and used in accordance with plan provisions. This process may help detect and prevent fraud, mismanagement or errors that could impact plan solvency or participant benefits.
• Identifying improvements: Beyond compliance and financial oversight, audits can uncover opportunities for improvement in plan operations or offerings, such as inefficiencies in claims processing, gaps in recordkeeping, a lack of reconciliation between the company’s and a service provider’s records, or poor communication of benefits with employees. By leveraging audit findings, employers can make data-driven decisions to revise plan design or improve administration.
• Building trust and transparency: When employers openly conduct and act upon benefit plan audits, they demonstrate accountability and ethical stewardship. This transparency builds trust between employees and management, especially concerning sensitive issues such as retirement security and health care access. According to a 2025 Society for Human Resource Management (SHRM) survey, 81% of workers indicated that benefits are a major factor in job satisfaction.
• Mitigating legal and financial risks: Benefit plans are subject to laws, regulations and market conditions. An audit helps organizations stay ahead of changes and uncover potential vulnerabilities. Problems that could cause legal trouble for employers include the following: contributions that are not deposited in a timely manner in accordance with ERISA; available forfeited amounts and plan fees paid that are not in accordance with the plan document or regulations; or high recordkeeping or administrative fees that are charged to the participants' accounts.
• Supporting strategic decision-making: Audits provide valuable insights that support more strategic and informed decision-making. If certain benefits are underutilized, employers can reallocate resources to offerings that better serve employees. Alternatively, if a benefit is highly valued, the organization might consider expanding it. For instance, audit procedures may identify available and unused revenue credits or available forfeited amounts. Leadership may consider reallocating the available revenue credits or the available forfeited amounts to the participant accounts as an additional benefit to the employees.
• Enhancing overall organizational performance: Employee benefit plans are more than just perks; they are a vital part of total compensation and organizational strategy. When employees feel supported through comprehensive and well-managed benefits, they are more likely to be productive, committed and satisfied. Studies have shown a direct correlation between benefit satisfaction and employee retention. Moreover, a strong audit process can be a key differentiator during due diligence in mergers and acquisitions, when plan governance and liabilities are under scrutiny.

As the business landscape and retirement plans evolve, employers should recognize that plan audits are more than a simple compliance exercise to satisfy regulatory requirements. Instead, these audits should be viewed as a core function of responsible governance. By treating audits as a function, an employer may reinforce a culture of accountability and transparency, safeguard valuable retirement plan assets and demonstrate a commitment to protecting its most valuable resource: its people. 

The views reflected in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization. This article has been adapted and reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.