Pennsylvania CPA Journal
When it comes to employee benefit plans, an audit is more than a compliance action. As explained in this column, audits also build trust and transparency, identify areas for improvement, among other benefits.
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. Retirement plans range from defined contribution plans (e.g., 401(k), profit-sharing), to defined benefit plans (e.g., pension, cash balance), to 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. Employers are encouraged to prioritize plan audits as a crucial process that contributes to long-term organizational success since audits are essential to compliance, transparency, and financial integrity. A combination of strong internal controls and compliance measures also helps protect against lawsuits and fraud.
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). ERISA 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. According to the U.S. Department of Labor (DOL), which has responsibility for enforcing ERISA compliance, nearly 81,000 Form 5500 filings were submitted in 2022 for large pension and welfare plans. Of these, approximately 71,000 required an audit. The DOL has conducted enforcement reviews and found deficiencies in audits that fail to meet professional standards. A 2015 study by the 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. It is important to conduct regular audits or periodic compliance reviews (for plans not subject to audits) to verify compliance with laws and regulations and to identify any discrepancies in order to adjust internal policies and procedures in a timely manner. 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. The Employee Benefits Security Administration (EBSA), part of the DOL, offers a resource on its website called “Selecting an Auditor for Your Employee Benefit Plan.”
Enhancing Financial Integrity – Employee benefit plans manage vast sums of money. For example, in 2022 private pension plans alone held over $11 trillion in assets, according to DOL data. 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. Ultimately, robust audits promote fiduciary responsibility and can give stakeholders – especially employees – confidence that their benefits are secure.
Identifying Improvements – Beyond compliance and financial oversight, audits can uncover opportunities for improvement in plan operations or offerings. For example, an audit may reveal 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 have the opportunity to make data-driven decisions to revise plan design or improve administration. Addressing these issues promptly not only strengthens compliance but may also enhance employee satisfaction and engagement.
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. If employees know their benefit plans are being independently audited and responsibly managed, they are more likely to feel secure.
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. For example, if contributions are not deposited in a timely manner in accordance with ERISA; the use of the available forfeited amounts and plan fees paid is not in accordance with the plan document or regulations; or high recordkeeping or administrative fees are charged to the participants’ accounts, employers could face legal consequences, including participant lawsuits. The EBSA reported recovering over $1.4 billion for plans, participants, and beneficiaries in fiscal year 2024 through enforcement actions. Many of these cases stemmed from audit deficiencies or compliance failures. By proactively identifying risks through audits, organizations may be able to avoid costly litigation and reputational harm.
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. Such adjustments can lead to improved participation rates, better retirement readiness for employees and a stronger return on investment for the organization.
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.
Conclusion
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. High-quality audits promote legal compliance, protect financial integrity, and provide valuable insights for continuous improvement. Backed by DOL data, it is evident that effective benefit plan audits can minimize risks, enhance employee trust, and support overall business success. 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.
Karolina Wiszowaty, CPA, and Yen Tieu, CPA, are managing directors in the EY US Transactional and Technical Topics Group (T3) – Postretirement Benefits at Ernst & Young LLP. They can be reached at karolina.wiszowaty@ey.com and yen.tieu@ey.com.
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.