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Every organization wants to make the most of its resources, especially when it comes to supporting employees’ financial futures. Yet even the best-managed retirement plans can carry risks that aren’t immediately visible. Market changes, fee structures, and evolving regulations all introduce uncertainty that no employer can fully predict or avoid.
And though risk is an unavoidable part of any pension plan, it doesn’t have to become a problem. With the right oversight, risks can be identified, managed, and even turned into opportunities for improvement. A pension plan audit provides an effective way to gain this insight, serving as a safeguard to ensure your organization and your employees are getting the most out of your retirement plan.
In this article, we explore what’s involved in a pension plan audit and highlight four ways an audit can uncover hidden costs and potential risks that may be affecting your organization’s financial health.
A pension plan audit is used to verify the accuracy of a pension plan’s finances and to ensure the plan is compliant with DOL, IRS, and ERISA rules and regulations. An audit can help protect employers and employees by identifying current or potential problems within a plan.
ERISA requires yearly audits for plans with 100 or more eligible participants. But an audit can benefit plans of any size and support goals beyond regulatory compliance, from performing a data clean-up to ensuring the plan is on track to meet its goals.
Plan fees can become uncompetitive as time passes if better, more affordable options enter the market. The result can reduce employees' long-term savings and increase employer costs, making it a lose-lose situation for both parties.
Periodic benchmarking can help companies identify if they’re overpaying for plan administration, recordkeeping, and investment management.
Example: A 0.5% difference in fees adds up over time and can dramatically reduce an employee’s retirement savings, making it important to catch fee differences early.
As market conditions change, employees may be stuck in underperforming or overly risky funds. Employees could lose money, and companies may face scrutiny if the investment lineup is outdated or misaligned with fiduciary best practices.
Example: If an investment fund’s value decreases significantly more than the S&P 500 annual return, the plan sponsor should switch employee funds into a better-performing fund.
Inaction has regulatory risks, including noncompliance with fiduciary duties. Failure to meet DOL, IRS, and ERISA regulations can result in audits, fines, and legal action.
And companies may face employee lawsuits if they believe the plan has excessive fees, poor investment choices, or inadequate communication.
Example: In recent years, major companies have paid millions in settlements for failing to review and update their retirement plan structures.
Employers should always be looking for newer, more cost-effective plan structures (e.g., auto-enrollment, managed accounts, or pooled employer plans). Otherwise, employers may lose out on tax credits, cost-sharing efficiencies, or improved employee financial well-being.
Example: If a company doesn’t consider updating plan features, it could miss cost savings and struggle with employee engagement and retention, as workers search for stronger retirement benefits.
Alongside conducting annual audits internally or with a third-party, organizations can take additional steps to protect their finances, including:
Exploring enhancement opportunities with plan providers and advisors
Benchmarking against industry standards
Asking for employee feedback to ensure engagement and satisfaction
Actuaries require various resources to perform an audit, including financial statements, internal control procedures, participant data, and compliance documents.
With October Three, your data is unnecessary to perform a plan audit, thanks to our proprietary pension forensicsSM tools, making it quick and inexpensive to get a second opinion.
Regularly auditing your plan is a good way to avoid unnecessary expenses and meet your goals. Without an audit, companies could face rising costs, legal risks, and disengaged employees. Take a proactive step. Get started today with an independent review that has your best interests in mind.