New Data Shows Nearly One in Three Employee Benefit Plan Audits Contain Major Deficiencies, Elevating Exposure for Plan Sponsors
Key Takeaways
- Audit quality is now a fiduciary risk, not just a compliance task. Regulators are increasing scrutiny, and deficiencies in employee benefit plan audits are leading directly to penalties, rejected filings, and personal liability for plan sponsors.
- Low-quality audits can create high-cost consequences. Nearly one in three audits show major deficiencies, often tied to non-specialist firms — shifting accountability squarely onto plan sponsors, not auditors.
- Specialized expertise is essential in today’s enforcement environment. Plan sponsors must treat auditor selection as a strategic decision, prioritizing firms with deep EBP experience, consistent quality, and the ability to navigate complex regulatory expectations.
The rules governing employee benefit plan audits haven’t changed. Enforcement has and the consequences are now landing directly with plan sponsors.
The U.S. Department of Labor’s most recent Audit Quality Study found that nearly one in three employee benefit plan audits contain major deficiencies, exposing organizations to rejected filings, civil penalties, and fiduciary liability. As regulatory scrutiny from both the DOL and IRS intensifies, what was once viewed as a routine compliance requirement has become a high-stakes risk decision for CEOs, CFOs, and HR leaders.
Across industries including healthcare, manufacturing, technology, construction, and real estate, plan sponsors are increasingly facing enforcement tied not to fraud, but to audit quality failures from non-specialist firms.
“Employee benefit plan audits are one of the few areas where organizations often underestimate risk,” said Mark Blackburn, LBMC Shareholder and Employee Benefit Plan Audit Practice Leader. “Choosing an auditor based only on the lowest-fee bid could be an expensive decision for a plan sponsor. The DOL doesn’t evaluate audits based on price; it evaluates them based on quality, and the accountability sits squarely with the plan sponsor.”
A Market Shift from Compliance to Accountability
Historically, many organizations approached benefit plan audits as a compliance exercise. That assumption is no longer viable.
Regulators are no longer waiting for plan sponsors to identify deficiencies. They are actively finding them through expanded enforcement initiatives, increased audit reviews, and more rigorous scrutiny of Form 5500 filings.
For plan sponsors, the implications are direct:
- Rejected filings and delays in compliance reporting
- Civil penalties and increased regulatory scrutiny
- Personal fiduciary liability for plan administrators
Organizations with growing plan participation, complex vendor structures, or multi-location operations face elevated exposure making the selection of an audit partner itself a fiduciary responsibility.
Specialization Is Now a Requirement — Not a Differentiator
As demand for specialist-level expertise increases, the gap between generalist audit providers and dedicated EBP audit firms continues to widen.
LBMC, a Top 25 national Employee Benefit Plan Audit practice performing more than 600 plan audits annually, has expanded its national platform to meet this shift.
Effective January 1, 2026, LBMC integrated Torrillo & Associates, now operating as LBMC Pennsylvania, adding a firm exclusively focused on employee benefit plan audits and deepening LBMC’s technical bench across the Mid-Atlantic and Northeast.
“Plan sponsors are moving toward firms that can deliver consistent audit quality at scale because that’s how regulators are evaluating them,” said David Torrillo, Shareholder and LBMC Pennsylvania Market Leader. “LBMC’s platform allows us to eliminate variability and reduce risk in an environment where there is little tolerance for audit deficiencies.”
What Plan Sponsors Should Do Now
With enforcement accelerating, leading organizations are taking proactive steps to reassess their audit approach before their next filing cycle.
Plan sponsors should evaluate whether their audit partner can:
- Demonstrate deep, dedicated EBPA specialization
- Provide consistent audit quality across locations and plan types
- Navigate increasingly complex regulatory expectations
- Reduce exposure to rejected filings and fiduciary risk
Take the Next Step to Reduce Your EBP Audit Risk
➡ Learn how LBMC’s Employee Benefit Plan Audit services can help or talk to an advisor here.
➡ Access LBMC’s Employee Benefit Plan Audit and Compliance Checklist here.
➡ Download the guide on when an Employee Benefit Plan Audit is required here.
