As the 2026 employee benefit plan audit season gets underway, several regulatory and operational issues are receiving increased attention. For companies whose benefit plans are subject to an annual audit, these developments are a good reminder that accurate plan administration - and clear documentation of that administration - can make a meaningful difference in the audit process.
Here are a few areas plan sponsors should be watching this year.
New Reporting Considerations for Late Participant Contributions
The Department of Labor updated its Voluntary Fiduciary Correction Program in 2025 to allow plan sponsors to self-correct certain delinquent participant contributions and loan repayment failures without submitting a formal application under the program.
This can make the correction process less burdensome, but it does not eliminate the related reporting and documentation requirements.
Informal guidance shared by Department of Labor representatives at the 2026 AICPA Employee Benefit Plan Conference indicated that amounts corrected through the program’s self-correction component should still be included in the applicable VFCP column of the supplemental schedule.
Because formal guidance has not yet been issued, plan sponsors should work closely with their third-party administrator, ERISA counsel, and auditor when determining how corrected amounts should be presented.
Just as importantly, sponsors should retain documentation showing:
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When the contributions or loan repayments should have been deposited
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When the issue was identified
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How lost earnings were calculated
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When the correction was completed
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Whether the self-correction requirements were met
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Automatic Enrollment and Escalation Remain Common Sources of Errors
Automatic enrollment and automatic contribution escalation have become more common, particularly following SECURE 2.0. They have also continued to receive attention from the Department of Labor as frequent sources of plan administration errors.
During the audit, we may need to test whether:
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Employees subject to automatic enrollment were enrolled at the correct time
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The proper deferral percentage was withheld
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Automatic increases were applied according to the plan document
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Participant elections to opt out or change their contribution rate were processed properly
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Any required refunds were issued accurately and on time
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Plan sponsors should confirm that their payroll system, recordkeeper, and plan document all reflect the same provisions. This is especially important when automatic enrollment provisions have recently been added or changed.
A helpful step before the audit begins is to review a sample of newly eligible employees and participants subject to an automatic increase. Identifying an issue early provides more time to determine whether a correction is needed.
Forfeiture Use and Disclosures Should Match the Plan Document
Forfeitures continue to be an area of regulatory and litigation risk. The plan document generally describes how forfeitures may be used, such as paying plan expenses, reducing employer contributions, or funding certain employer allocations.
Sponsors should confirm that actual forfeiture activity follows the terms of the plan document. Financial statement disclosures should also describe the use of forfeitures accurately.
A best practice is to disclose not just what the plan allows forfeitures to be used on, but the preferential order of use of forfeitures. If forfeitures are first to be used for plan expenses, then to reduce employer profit sharing contributions, and finally any remaining forfeitures are to be allocated to participant accounts, that precise order should be included in the disclosures.
The audit team will need the current, executed plan document, including all amendments, to evaluate these provisions. Keeping a complete and updated version readily available can prevent delays and reduce confusion during the audit.
Form 5500 Filing Penalties Continue to Increase
The maximum Department of Labor civil penalty for failing to file Form 5500 has increased to $2,739 per day, as adjusted for inflation. When no Form 5500 is filed, there is no overall maximum on the penalties the Department of Labor may assess.
This creates a difficult situation when the plan audit is not complete by the filing deadline. Although the Department of Labor has not issued formal guidance on this scenario, its representatives have frequently indicated that they generally prefer plans to file the most complete Form 5500 available by the deadline rather than file nothing.
A filing submitted without the completed audit would be considered deficient rather than delinquent. The filing should generally include an explanation of the missing information and the plan sponsor’s intended course of action. The filing can then be amended once the audit is complete.
Plan sponsors facing a potential filing delay should discuss their options with their auditor, Form 5500 preparer, and ERISA counsel well before the deadline.
Plan Termination Does Not Always Require Liquidation-basis Accounting
Plans are frequently terminated, partially terminated, or merged into another plan. These events do not all result in the same accounting treatment.
Liquidation-basis accounting generally applies only when liquidation is considered imminent, such as when a formal liquidation plan has been approved and it is unlikely that the plan will be blocked or abandoned.
A partial plan termination or a merger into another plan generally does not meet the definition of a liquidation. Sponsors considering a plan termination or merger should communicate those plans to their auditor early so the appropriate accounting and financial statement presentation can be evaluated.
Preparing for a Smoother Audit
Many audit issues begin with differences between the plan document, payroll system, recordkeeper, and the way the plan is being administered. Before fieldwork begins, plan sponsors should consider reviewing:
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The current plan document and all amendments
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Automatic enrollment and escalation settings
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The timing of participant contribution deposits
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Forfeiture activity and how forfeitures were used
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Any corrections completed during the year
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Planned terminations, mergers, or significant plan changes
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The status and expected timing of the Form 5500 filing
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At Sweeney Conrad, our goal is to make the employee benefit plan audit process as straightforward as possible by helping plan sponsors identify issues early, understand what is needed, and avoid surprises as deadlines approach.
Please reach out to your Sweeney Conrad team with questions about how these developments may affect your plan or its upcoming audit.