The 8 Biggest 401(k) Audit Failures

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:

👉 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.

Frequently Asked Questions

What should I do if I missed the October 15 Form 5500 deadline?

First, confirm that October 15 was actually your plan’s deadline and that a valid extension applied. If the deadline has passed, determine what is preventing the Form 5500 from being completed. If a required 401(k) audit is unfinished or hasn’t started, contact an experienced employee benefit plan auditor immediately and work with your other advisors to determine the appropriate filing and penalty-relief options.

Can you file Form 5500 after the deadline?

Yes. A delinquent Form 5500 can still be filed after its due date. Filing late does not eliminate the filing requirement, however, and potential DOL and IRS penalties may apply. Eligible plan administrators may be able to use the DOL’s Delinquent Filer Voluntary Compliance Program to reduce certain penalties.

What are the penalties for filing Form 5500 late?

The Department of Labor may assess substantial civil penalties for failure to file a complete and accurate Form 5500. Current Form 5500 instructions state a potential DOL penalty of up to $2,739 per day. The IRS can separately assess $250 per day, up to $150,000 per plan year, for certain late Form 5500-series filings. Actual penalties and available relief depend on the circumstances.

What is the DOL's Delinquent Filer Voluntary Compliance Program?

The DFVCP is a Department of Labor program that allows qualifying plan administrators to voluntarily submit delinquent Form 5500 filings and pay reduced civil penalties. Eligibility generally requires correcting the filing before the DOL has provided written notice of the failure to file.

What if my 401(k) audit hasn't started and the Form 5500 deadline has already passed?

If your plan is required to have an independent audit, missing the Form 5500 deadline does not remove that requirement. Contact an employee benefit plan auditor as soon as possible, explain that the filing is already late and determine what records are needed to begin the audit immediately. Work simultaneously with your TPA and other advisors to address the delinquent filing and determine whether penalty-relief options are available.

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