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Start with two decisions: confirm whether your ERISA plan must attach audited financial statements to its Form 5500 filing, then engage an independent CPA with recent employee benefit plan experience. Build a dated evidence file for plan assets, obligations, contributions, benefit payments, participant accounts, tax-status matters and prohibited transactions. The administrator remains responsible for complete records and an accurate annual report; the auditor is responsible for performing an independent engagement and reporting an opinion.
What the latest DOL audit-quality study actually found
The dates and population matter
The newest audit-quality study identified by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) was published in November 2023 and examined audits for the 2020 filing year. Its results are not a 2026 failure rate, nor a census of every employee benefit plan audit. They describe the audits selected for that study.
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The headline deficiency finding
EBSA reported that 30% of the audits reviewed contained major deficiencies involving one or more relevant generally accepted auditing standards requirements. The study also linked audit quality with the number of employee benefit plan audits performed by the CPA. EBSA reported lower deficiency rates among audits performed by members of the AICPA Employee Benefit Plan Audit Quality Center. The published summary does not establish that every firm member will produce a compliant audit, so treat membership as one screening signal rather than a substitute for references, licensing and a detailed engagement discussion.
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In connection with the study’s findings, the DOL search material cited $927 billion and 11.7 million plan participants and beneficiaries at risk. Those figures belong to the study’s historical context. They should not be presented as today’s aggregate exposure or as a forecast of losses for your plan.
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What “major deficiencies” means for a sponsor
A deficiency can arise when an audit does not perform, document or report procedures required by professional standards. Employee benefit plans create specialized risks that a general business-audit routine can miss. DOL administrator guidance specifically tells sponsors to ask whether the auditor addressed fair valuation of covered assets, accurate statements and descriptions of obligations, timely receipt of contributions, benefit payments under plan terms, participant-account accuracy where applicable, tax-status issues and prohibited transactions.
That list is a practical quality-control agenda. It does not mean every plan has the same transactions or that the auditor must test each item identically. It means the engagement should show how the team evaluated the areas relevant to your plan and why any area was not applicable.
Does my employee benefit plan need an audit?
The general 100-participant rule
Federal law generally requires an employee benefit plan with 100 or more participants to obtain an audit as part of its Form 5500-series filing. Determine the count using the applicable Form 5500 instructions and your plan’s participant categories, not an informal headcount. Document the calculation and the date used so the administrator, auditor and filing preparer are working from the same definition.
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The threshold is not a complete analysis for every small plan. Some pension plans with fewer than 100 participants may still require an audit because of conditions involving investments, bonding and disclosures. A plan’s funding arrangement, assets and filing circumstances can change from year to year. If your plan is below 100 participants, ask ERISA counsel or a qualified benefits professional to confirm whether an audit exception applies before assuming the audit is optional.
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Connect the answer to the annual filing
An audit, when required, is part of the annual report process rather than a stand-alone financial exercise. The administrator must provide the auditor’s opinion and any required schedules with the Form 5500 filing. Coordinate the audit calendar with the plan’s reporting deadline, extension strategy and internal review time. A late engagement can leave no practical time to correct a missing schedule or resolve a qualification issue.
Divide responsibilities before fieldwork begins
A clear responsibility map prevents the two most damaging misunderstandings: assuming the auditor will reconstruct missing records, or assuming management can direct the auditor’s conclusions.
| Area | Administrator or sponsor responsibility | Independent auditor responsibility |
|---|---|---|
| Records and data | Maintain plan financial and operational records; obtain records held by trustees, custodians, payroll providers, recordkeepers and other service providers. | Design and perform procedures, evaluate evidence and retain documentation supporting the opinion. |
| Annual report | Provide complete and accurate information for Form 5500 and required schedules; make management representations where required. | Express an opinion on the financial statements and required schedules within the engagement scope. |
| Plan operations | Operate the plan under its document, correct errors and disclose matters that could affect tax status or compliance. | Consider relevant plan provisions and test transactions and controls as required by auditing standards; communicate significant problems or control improvements. |
| Independence | Select an auditor without conflicts and avoid restricting access or influencing conclusions. | Remain objective, hold a current state license or certification as a public accountant and report independently. |
DOL describes a well-performed audit as “a vital protection for your employee benefit plan.” That protection depends on management supplying complete information and the CPA applying specialized, independent procedures.
Build an audit-readiness calendar
90–120 days before fieldwork
- Confirm the participant count, plan type, filing year and whether an audit is required.
- Review the prior year’s financial statements, auditor communications, Form 5500 schedules and unresolved recommendations.
- Issue a request list to every record holder: custodian, trustee, payroll team, recordkeeper, benefits administrator, actuary and investment manager.
- Confirm the CPA’s license, independence, employee benefit plan experience, staffing and planned review by a senior professional.
- Negotiate an engagement letter that states scope, timing, fees, deliverables, access expectations, management responsibilities and treatment of any limited-scope certification.
60–90 days before fieldwork
- Reconcile the general ledger to custodial statements and the prior year’s audited balances.
- Assemble census, payroll and contribution files by payroll period, including remittance dates and evidence of deposits.
- Collect benefit-payment registers, distributions, participant loans, forfeitures, rollovers, claims or appeals data and approval records, as applicable.
- Obtain current plan documents, amendments, summary plan descriptions, trust agreements, investment policies and committee minutes.
- Ask providers for SOC reports or equivalent control documentation when the auditor requests it, and identify any period or service changes.
30–60 days before fieldwork
- Investigate unreconciled items, stale checks, suspense balances, participant-account differences and late contribution deposits.
- Prepare explanations and supporting documents for unusual investments, hard-to-value assets, related-party transactions and changes in service providers.
- Have legal, tax and benefits advisers evaluate open issues that could affect the plan’s tax status or required disclosures.
- Agree on secure file-transfer methods, interview availability and the escalation contact for urgent questions.
During and after fieldwork
- Respond to evidence requests through a tracked log; identify the owner and expected delivery date for every item.
- Do not alter source records to match a requested number. Explain corrections, preserve the original support and document approvals.
- Review proposed adjusting entries and draft financial statements for consistency with the plan’s records and governing documents.
- Read the auditor’s communications, including significant deficiencies, control suggestions and any scope limitation, and assign corrective owners and deadlines.
- Verify that the final opinion and required schedules are attached to the correct Form 5500 filing before submission.
Records to have ready for plan-specific testing
| Audit focus | Typical evidence to organize | Readiness check |
|---|---|---|
| Fair valuation of assets | Custodian statements, valuation reports, pricing support, investment confirmations and documentation for hard-to-value holdings. | Can each material investment balance be tied to an independent statement or a documented valuation method? |
| Obligations and disclosures | Benefit obligations, actuarial reports where applicable, outstanding payables, commitments, related-party disclosures and subsequent-event information. | Do the financial statements describe material obligations and accounting policies accurately? |
| Contributions | Payroll registers, remittance reports, bank confirmations, contribution schedules and records of late deposits or corrections. | Can each payroll-period contribution be traced from payroll through deposit and participant allocation? |
| Benefit payments | Distribution registers, claim approvals, payment files, tax forms, participant instructions and evidence of authorization. | Were payments made to eligible participants in amounts allowed by the plan terms? |
| Participant accounts | Recordkeeper reports, allocation files, loan records, forfeiture activity, investment elections and reconciliation reports. | Do totals reconcile to the financial statements, and are individual allocations supported? |
| Tax-status matters | Testing results, correction calculations, legal or tax advice, plan amendments and communications about compliance failures. | Has management disclosed issues that could affect qualification or required corrective action? |
| Prohibited transactions | Party-in-interest listings, service agreements, fee invoices, committee minutes, investment trades and conflict reviews. | Were transactions with related parties identified, evaluated and disclosed or corrected when necessary? |
How to choose and compare employee benefit plan auditors
Obtain proposals from firms that can demonstrate current credentials and relevant plan work. DOL recommends checking references and licenses and selecting an auditor with employee benefit plan experience. Compare proposals on the same questions rather than choosing on fee alone.
| Comparison point | What to verify |
|---|---|
| License and independence | State license or certification is current; no financial or personal interest compromises objectivity; conflicts are disclosed and resolved. |
| Relevant experience | Recent audits for plans with similar assets, investments, participant activity and service-provider structure; familiarity with specialized plan requirements. |
| Team and review | Who performs fieldwork, who reviews complex estimates and who signs the report; how turnover or peak-season capacity is handled. |
| Scope and testing | How the firm will address assets, obligations, contributions, benefits, participant accounts, tax-status risks, prohibited transactions and required schedules. |
| Communication | Expected request lists, meeting cadence, escalation process, draft-review procedure and form of management letter. |
| Commercial terms | Fixed or estimated fees, assumptions, out-of-scope rates, timing, deliverables and responsibilities stated in the engagement letter. |
Questions to ask before signing the engagement letter
- Which team members have performed recent audits for plans like ours, and who will review their work?
- How will you determine whether our participant count and plan features trigger an audit requirement?
- What information will you request from payroll, the recordkeeper, custodian, trustee and actuary?
- How will you test contribution timing, benefit eligibility and participant-account allocations?
- What valuation evidence will you require for private, thinly traded or otherwise hard-to-value assets?
- How will you identify prohibited transactions and matters that could affect tax status?
- What would qualify as a scope limitation, and how would it affect the report and Form 5500 filing?
- Are you proposing a limited-scope audit, and what certifications must the bank or insurance company provide for that treatment?
- What are the target dates for the request list, fieldwork, draft statements, final opinion and filing support?
- How will you communicate control deficiencies, proposed adjustments and unresolved disagreements?
Limited-scope audits require a specific eligibility analysis
A limited-scope audit may be permitted in defined circumstances when a bank or insurance company supplies appropriate certifications for plan assets. It is not a generic shortcut and does not eliminate management’s duty to maintain records or file a complete annual report. Ask the CPA and qualified ERISA counsel to determine whether the plan, institution, certification language and disclosure requirements meet the applicable conditions. Preserve the certification with the audit file and confirm exactly what the auditor’s report covers and excludes.
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Choosing a generalist because the quote is lower
Risk: The team may overlook plan-specific procedures or underestimate the time needed to understand the document and recordkeeping system.
Fix: Compare demonstrated plan experience, staffing, references and scope before comparing fees.
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Risk: Missing payroll or custodial records create delays, reconciliation differences and possible scope concerns.
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Fix: Name a record owner for each provider, use a request tracker and obtain access permissions before fieldwork.
Ignoring late contributions or old reconciling items
Risk: Unresolved exceptions can lead to correction costs, disclosures or control findings.
Fix: Quantify each exception, determine cause, document correction and obtain specialist advice when participant rights or tax qualification may be affected.
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Assuming the prior-year approach still fits
Risk: New investments, vendors, plan amendments or transaction volumes can change the necessary procedures.
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Fix: Give the auditor a change log and updated plan documents at kickoff.
Waiting until the draft report to ask about scope
Risk: A disagreement discovered late may leave no time for additional procedures or a corrected filing.
Fix: Confirm scope, materiality, required schedules and escalation contacts in the engagement letter and kickoff meeting.
A final administrator checklist
- Audit obligation and participant-count analysis documented.
- CPA license, independence and plan experience verified.
- Engagement letter signed with scope, timing, fees and responsibilities.
- Plan documents, amendments and governing agreements current.
- Bank, custodian, trustee, payroll and recordkeeper access arranged.
- Assets reconciled and valuation support collected.
- Contributions traced from payroll through deposit and allocation.
- Benefit payments, loans, rollovers and forfeitures supported by approvals and registers.
- Participant-account totals reconciled to financial statements.
- Tax-status issues, prohibited transactions and related-party activity evaluated.
- Required schedules and the final opinion reviewed before Form 5500 submission.
- Control findings and corrective actions assigned to named owners.
The DOL’s 2023 study of 2020 filing-year audits is a warning to treat quality as a process, not a signature at the end. A qualified independent auditor can test and report; only an organized administrator can provide the complete, timely and plan-specific record that makes that work reliable.
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