401k Audits

Employee benefit plan audits are an annual requirement for many organizations that sponsor retirement or benefit plans and meet certain size thresholds. These audits exist to help protect plan participants and ensure that assets are handled in accordance with regulations. The audit is performed by an independent CPA firm, separate from the organization’s internal accounting function, and understanding what auditors look for is the first step to maintaining compliance.

Sponsoring a 401(k) plan provides meaningful value to employees, but it also requires employers to demonstrate each year that the plan is working as intended. Nondiscrimination testing is the primary way the IRS evaluates that performance, checking whether contributions and participation patterns are balanced between highly compensated employees (HCEs) and everyone else. For plan sponsors, a clear understanding of these tests can support compliance and plan design decisions.

The Treasury Department and the IRS have issued final regulations on catch-up contributions under the SECURE 2.0 Act. The regulations confirm that certain higher-income employees who make catch-up contributions to workplace retirement plans will be required to designate those amounts as after-tax Roth contributions. These rules will affect plan sponsors, administrators, and participants as they prepare for the upcoming compliance dates.

Employees often look first at their paycheck when they think about compensation. That makes sense, since salary and take-home pay are the numbers they see most often. Other parts of the package such as health insurance, paid time off, and employer contributions to retirement plans may not be as visible. Yet these benefits represent a large share of what employers provide. Recent reports show that wages and salaries account for about 70% of employer costs for private industry workers, while benefits make up the remaining 30%.

On March 17, 2025, the Department of Labor (DOL) announced its first major update to the Voluntary Fiduciary Correction Program (VFCP) since 2006. The program, a familiar tool for retirement plan sponsors, has always offered a way to fix fiduciary errors before they lead to enforcement action. In practice, though, the process often required more paperwork than many sponsors felt was reasonable for small, routine mistakes. The new rules introduce a Self-Correction Component and modernize several existing provisions, giving employers a new path to compliance while keeping the accountability standards of ERISA in place.

Preparing for an ERISA plan audit often starts with understanding what the audit looks for and how daily plan operations support compliance. For plans that cover 100 or more eligible participants at the beginning of the year, the audit is a required part of filing Form 5500. But beyond meeting filing requirements, the process gives sponsors a chance to review how contributions are handled, how participant data is tracked, and how internal controls are working.

The Voluntary Fiduciary Correction Program (VFCP) is overseen by the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor. Through the VFCP, plan fiduciaries are encouraged to voluntary report and correct violations according to the Employee Retirement Income Security Act (ERISA). With this voluntary compliance process, fiduciaries have a structured way they can self-correct violations and better adhere to ERISA regulations. If there is a loss due to a fiduciary breach, for example, this self-reporting technique can ensure that they are restored to the plan in a way that protects plan participants and beneficiaries. Self-reporting also frees up resources for the Department of Labor to focus on violations that are more serious.

Earlier this month, the IRS issued IR-2025-07 which contains proposed regulations impacting catch up contribution rules. Specifically, there is important information on how the new Roth Catch Up Contribution Rule should be applied. It includes detailed information on the determination of wage threshold, FICA wages, definition of employer sponsor, and available correction methods.

Millions of Americans leave behind retirement accounts every year due to job changes, incomplete records, or failing to roll over funds. An estimated 29.2 million forgotten 401(k) accounts hold approximately $1.65 trillion in assets. In response to this growing issue, the Department of Labor (DOL) created the Retirement Savings Lost and Found (RSLF) database under the SECURE 2.0 Act of 2022. 

A recent analysis by Abernathy Daley 401(k) Consultants suggests that around 80% of companies with more than 100 employees may be overpaying on administrative fees for the defined contribution (DC) retirement plans. This finding, based on a review of over 6,500 Form 5500 filings submitted annually to the Department of Labor and IRS, highlights a widespread issue across industries.