Your Form 5500 was filed. Was the audit good enough?

It is easy to treat the Form 5500 confirmation as the end of audit season. The report has been attached. The finance team can turn back to payroll, hiring, and the work that accumulated while everyone was answering audit requests.

Before the file is closed, the retirement plan committee has one more question to ask: How much confidence should we place in the work behind that report?

For employers sponsoring an ERISA-covered retirement plan, that question reaches well beyond a filing deadline. Employees are relying on the records being examined to account for money they expect to live on in retirement.

Consider a contribution calculation that excludes bonuses the plan document says should count. Employees can receive incorrect contributions even while the annual totals look plausible. The IRS identifies using the wrong compensation definition as a recurring plan error. IRS guidance on compensation errors

Connecting the plan document to payroll and participant records gives the audit team a chance to find that mismatch. It is also a concrete reason to ask about benefit plan experience when hiring the team.

What two DOL studies found

DOL’s November 2023 study used a statistically valid sample of 307 audits for plan years beginning in 2020. It estimated a 30% major-deficiency rate under professional auditing standards. DOL’s 2023 Audit Quality Study, pp. 4 and 11

The earlier May 2015 study, covering 2011 plan-year audits, estimated a 39% major-deficiency rate. The newer findings showed improvement, with a substantial quality problem remaining. DOL’s 2015 study

Experience stood out. In the 2023 study, estimated major-deficiency rates were 70% for firms performing one or two benefit plan audits annually and 17% for firms performing 100 or more. Volume is one useful selection factor; it cannot guarantee an individual firm’s work. DOL’s 2023 study, Table 7

These percentages concern audit work. They do not measure filing rejections. The 2020 audits also predate required implementation of SAS 136, the ERISA audit reporting standard, so the results describe historical performance. Study scope, p. 4

For a committee comparing proposals, the practical lesson is straightforward: ask how much employee benefit plan work the proposed team does, and examine the quality controls supporting it.

How can a filed return still be rejected?

EFAST2, the government’s electronic filing system, can receive a Form 5500 even when a required independent accountant’s report is missing. DOL expressly warns that such a filing remains incomplete and may face review, rejection, and civil penalties. A submission confirmation cannot establish the quality of the audit work. DOL’s EFAST2 FAQs, questions 25 and 38

ERISA §104(a)(4) permits DOL to reject an annual report that is incomplete or contains a material qualification in the accountant’s or actuary’s opinion. If a satisfactory revised filing is not submitted within 45 days after DOL’s rejection determination, §104(a)(5) authorizes additional action under its stated conditions, including commissioning an audit at the plan’s expense. That provision does not create a penalty-free extension of the original filing deadline. 29 U.S.C. §1024(a)(4)–(5)

The operational burden can be substantial. Payroll records may have to be retrieved again, staff may need to revisit reconciliations, and the committee may need to coordinate the response with its auditor and ERISA counsel while the next plan year is already underway.

Keep the terminology straight. An audit-quality deficiency concerns shortcomings in the auditor’s work. A weakness in the plan’s controls is a separate issue that a well-performed audit may identify. A modified opinion communicates a matter affecting the auditor’s conclusion, while rejection is an action DOL can take on the filing. Finding and reporting an uncomfortable problem can be evidence that the auditor is doing the job well.

Five questions to ask before hiring a plan auditor

DOL’s auditor-selection guidance emphasizes independence, relevant experience, training, and clear engagement terms. Use that as the starting point for five practical questions. Selecting an Auditor for Your Employee Benefit Plan

1. How much benefit plan work does our assigned team perform? Ask about plans like yours and the experience of the people doing the work, including the engagement partner.
2. How is that work reviewed? Ask who supervises less-experienced staff, what EBP-specific training the team receives, and how the firm addresses quality-review findings.
3. What will you need from us? Request a clear timetable and discuss payroll records, participant data, plan documents, and responsibility for resolving missing information.
4. How will you communicate problems? Establish when findings reach management and the committee, who explains their significance, and how outstanding matters will be tracked.
5. What does the quoted fee cover? Clarify the scope, staffing, deliverables, and circumstances that could require additional work.

Listen for specifics. “We have done these for years” leaves important questions unanswered if the proposed team is new to benefit plans or the experienced partner only appears at the sales meeting.

Understand what the audit can tell you

Some plans elect an ERISA §103(a)(3)(C) audit using properly certified investment information from a qualifying institution. This is a permitted audit approach. The election itself is not a quality defect. Contributions, benefit payments, participant data, and other non-investment information remain subject to appropriate audit procedures, even when those items appear in certified records. AICPA’s §103(a)(3)(C) plan advisory

Ask the auditor to explain the election in ordinary language, including what information is certified and what work the audit still covers. Discuss the engagement’s limits as well, including how professional judgment and testing affect what the audit can tell you.

A useful closing meeting should leave the committee able to explain the significant issues identified, what remains unresolved, and which person is responsible for the next step. Put those decisions in the committee’s records while the discussion is fresh.

Make the next selection a documented decision

The plan administrator is responsible for engaging the independent qualified public accountant on behalf of participants. Hiring an outside preparer or transmitter also leaves the administrator responsible for the filing’s accuracy and completeness. ERISA §103(a)(3)(A), DOL’s EFAST2 FAQ, question 35

Before renewing the engagement, record why the team is qualified for your plan, how its work is reviewed, and what the committee expects to receive. Keep the fee comparison alongside that assessment.

The strongest reason to choose a good auditor is sitting in the participant census. Every row represents someone whose retirement savings deserve careful, competent scrutiny. The committee’s selection process should reflect that responsibility.