And How Smart Plan Sponsors Fix Them Before It’s Too Late
If your 401(k) audit felt harder than it should’ve last year, you’re not alone.
Across hundreds of audits, the same issues show up again and again—and they’re costing plan sponsors time, money, and unnecessary risk.
Here’s the truth: Most audit findings aren’t complex. They’re preventable breakdowns in process, timing, and coordination.
Below are the top 8 401(k) audit pitfalls, how they’re fixed during an audit, and how to make sure they don’t show up again next year.
1. Late Employee Contributions (the #1 Audit Finding)
The issue: Deposits aren’t made “as soon as reasonably possible.”
Fix it (during audit):
- Calculate lost earnings
- Fund corrections
- File under DOL VFCP (if needed)
- Disclose on Form 5500
Prevent it:
- Set a 3–5 day internal deposit rule
- Automate payroll → recordkeeper transfers
- Monitor timing every payroll cycle
2. Incorrect Compensation Definitions
The issue: Payroll doesn’t match the plan document (bonuses, OT, commissions, etc.)
Fix it:
- Recalculate contributions
- Fund shortages + earnings
Prevent it:
- Align plan doc + payroll + HRIS
- Standardize compensation codes
- Annual comp review
3. Employer Match Errors
The issue: Match formulas applied incorrectly—or not at all.
Fix it:
- Recalculate across all participants
- Fund shortfalls
Prevent it:
- Automate match logic
- Perform quarterly true-ups
- Document formulas clearly
4. Eligibility Mistakes
The issue: Employees enter the plan too early or too late.
Fix it:
- Identify impacted employees
- Fund missed contributions (QNECs if required)
Prevent it:
- Sync eligibility rules with HRIS
- Set automated alerts
- Run quarterly checks
5. Loan & Distribution Errors
The issue: Loans exceed limits or hardship withdrawals lack documentation.
Fix it:
- Correct or reclassify distributions
- Ensure proper tax reporting
Prevent it:
- Route everything through recordkeeper controls
- Use standardized documentation checklists
6. Bad Census Data
The issue: Incorrect employee data leads to widespread audit issues.
Fix it:
- Reconcile census to payroll + HRIS
- Retest impacted areas
Prevent it:
- Establish a single source of truth
- Validate data before the audit starts
7. Form 5500 & Financial Reporting Errors
The issue: Numbers don’t tie. Disclosures are wrong.
Fix it:
- Amend filings if necessary
- Reconcile all reports
Prevent it:
- Use a tie-out checklist
- Keep audit + 5500 data aligned
8. Weak Internal Controls (The Root Cause)
The issue: No defined process throughout the year = recurring errors.
Fix it:
- Identify gaps
- Implement basic controls
Prevent it:
- Assign ownership
- Monitor monthly or quarterly
- Use a repeatable, audit-ready process
The Real Problem (That No One Talks About)
It’s not the 401(k) audit. It’s the fact that:
- Payroll, HR, and the plan document don’t align
- Everything is reviewed once a year (too late)
- Manual processes create inconsistent results
What a Well-Run 401(k) Plan Looks Like
The best plan sponsors:
- Monitor compliance throughout the year
- Fix issues in real time
- Use systems—not spreadsheets—to stay aligned
- Work with auditors who prevent problems, not just report them
Your audit shouldn’t take 20+ hours of your time—or come with any of these surprises.
At PriceKubecka:
- Flat-fee 401(k) audits (no scope creep)
- Less than 5 hours of sponsor time
- Full-population testing (we find issues early)
- A streamlined, predictable process
👉 Schedule a quick call to see how we eliminate audit headaches before they start.
Frequently Asked Questions
What is the most common 401(k) audit finding?
Late employee contributions are the most common issue identified in 401(k) audits and often require corrective contributions and disclosures.
How do you correct 401(k) audit errors?
Most errors are corrected by recalculating contributions, funding any shortfalls with earnings, and disclosing or filing corrections with the IRS or DOL when required.
How can I prevent 401(k) audit issues?
Implement automated processes, align payroll with plan provisions, and monitor compliance throughout the year instead of waiting until the audit.
What happens if 401(k) errors aren’t fixed?
Uncorrected errors can lead to penalties, plan disqualification risks, and increased scrutiny from regulators.
How long should a 401(k) audit take for the plan sponsor?
With a streamlined process, most plan sponsors should spend 5 hours or less on their audit.
