When a plan sponsor learns that their retirement plan will be audited, the reaction is often the same. They start gathering documents, searching for reports, and preparing for requests from the auditor. While those tasks are important, they miss a key point. A retirement plan audit does not begin when the auditor arrives. It begins every day the plan operates.
The quality of an audit is often determined by the quality of a sponsor’s procedures throughout the year. Auditors review payroll records, participant transactions, eligibility determinations, distributions, loans, and employer contributions. If those items were handled correctly and documented properly when they occurred, the audit process tends to be straightforward. If they were not, the audit can become expensive and time-consuming.
One of the biggest mistakes sponsors make is treating compliance as an annual exercise. Compliance is really a year-round responsibility. Every payroll run, every new hire, every terminated employee, and every participant transaction creates information that may eventually be reviewed by an auditor. Missing records, inconsistent procedures, and undocumented decisions often become significant issues months or years later.
The sponsors that experience the fewest audit problems are usually not the sponsors that spend the most time preparing for the audit. They are the sponsors that maintain good processes throughout the year. They keep accurate payroll records, review plan operations regularly, and work closely with their service providers to identify issues before they become problems.
A successful audit is rarely the result of luck. It is usually the result of preparation, organization, and attention to detail. Plan sponsors should remember that by the time an auditor asks a question, the answer should already exist in the plan’s records. That’s why your retirement plan audit starts long before the auditor arrives.