April 24, 2026
By Newburg | CPA Staff
As 401(k) audits ramp up this spring, it’s a good time for plan sponsors to ask: Is our plan truly audit-ready? At Newburg CPA, we regularly conduct 401(k) audits and have seen firsthand how even well-intentioned companies can fall short on key compliance areas. The good news? Many of the most common issues are preventable—with the right oversight and proactive plan administration.
Below are the top issues we uncover during audits, and what your team can do to stay ahead of them:
1. Delayed Contribution Remittances
The Issue:
Employers are required to deposit employee deferrals into the plan as soon as they can reasonably be segregated from company assets. Many mistakenly assume they have until the 15th business day of the following month—but that’s the maximum, not a safe harbor.
Why It Matters:
Late deposits are considered prohibited transactions by the DOL and may require lost earnings calculations and additional employer contributions to participant accounts.
How to Avoid:
- Determine the earliest point at which funds can be segregated—this should become your standard going forward.
- Ensure your payroll provider or internal team is consistently remitting deferrals on this timeline.
- If errors are discovered, work with a qualified advisor to calculate lost earnings and make corrections through the DOL’s Voluntary Fiduciary Correction Program (VFCP), if needed.
2. Missed or Delayed Employee Eligibility
The Issue:
Failing to enroll employees who meet the plan’s eligibility requirements (e.g., age or service thresholds) or enrolling them late is a frequent error — especially with part-time or variable-hour employees.
Why It Matters:
Late enrollment leads to missed deferrals and missed employer contributions, which require retroactive corrections and possible IRS reporting.
How to Avoid:
- Review your plan document’s eligibility rules and ensure your HR/payroll teams apply them consistently.
- Use automated tracking or alerts to flag employees approaching eligibility.
- Corrective actions may include providing affected employees with missed contributions plus earnings.
3. Excess Contributions
The Issue:
For 2025, the IRS limit on employee salary deferrals is $23,500, with an additional $7,500 catch-up for those aged 50 or older. Allowing employees to contribute beyond these limits results in plan noncompliance.
Why It Matters:
Excess contributions can create tax liabilities for both the employee and employer and may trigger the need for plan-level corrections.
How to Avoid:
- Monitor deferral amounts regularly through payroll systems.
- Automatically cap deferrals once the IRS limit is reached.
- If an overage occurs, ensure the excess is returned to the employee by April 15th of the following year to avoid penalties.
4. Failure to Follow Your Own Plan Document
The Issue:
Every 401(k) plan is governed by a specific plan document detailing rules for compensation, vesting, eligibility, employer matches, and more. Deviating from these provisions—even unintentionally—can cause compliance violations.
Why It Matters:
Inconsistencies between plan operations and documented terms can lead to failed audit findings and require corrective action to bring participant accounts into compliance.
How to Avoid:
- Review your plan document annually and ensure operational procedures match its provisions.
- Train internal staff on key plan rules (e.g., eligible compensation, match formulas).
- Document and address any operational deviations immediately with help from your auditor or plan advisor.
5. Lacking Documentation of Fiduciary Oversight
The Issue:
ERISA requires fiduciaries to act in the best interest of plan participants and document their oversight activities—like reviewing investment performance, selecting providers, and making plan changes.
Why It Matters:
Without documented meeting minutes, investment reviews, or decision rationales, it becomes difficult to prove fiduciary due diligence in the event of a DOL audit or participant lawsuit.
How to Correct/Avoid:
- Hold regular plan oversight meetings (quarterly, at minimum).
- Keep formal minutes noting decisions, investment discussions, and any changes made.
- Clearly identify who the named fiduciaries are and ensure they understand their responsibilities.
Partner with a Trusted Audit Team
Whether this is your first 401(k) audit or your fifth, our team at Newburg CPA is here to help you navigate the process with clarity and confidence. We’ll help you identify compliance gaps early—before they become costly mistakes.
Have questions or need help preparing for your plan’s audit? Let’s talk.