Facing a 401(k) Audit Deficiency?

Receiving notice of a 401(k) audit deficiency can be unsettling for any plan sponsor or administrator. Whether it’s a missing document, a reporting error, or a compliance lapse, the Department of Labor (DOL) takes these issues seriously — and so should you.

But a deficiency doesn’t have to spell disaster. With the right understanding and a proactive approach, you can resolve issues efficiently and avoid deeper penalties.

What Is a 401(k) Audit Deficiency?

A 401(k) audit deficiency typically refers to a failure in meeting audit requirements for plans classified as “large plans” — those with 100 or more participants with account balances at the beginning of the plan year.

Common deficiencies include:

  • Not submitting an independent auditor’s report with Form 5500
  • Submitting an incomplete or poor-quality audit report
  • Failing to address issues raised in a prior audit
  • Using an auditor without proper EBP (Employee Benefit Plan) experience
  • Late or missed filings

How Will You Be Notified?

You may receive a notice from:

  • The Department of Labor (DOL)
  • The IRS (during a compliance check or audit)
  • An alert from your TPA (third-party administrator) or compliance provider

The notice will outline the nature of the deficiency, the deadline to respond, and the steps you must take to correct the issue.

What Happens Next?

Here’s what to expect once a deficiency is identified:

1. Deadline to Correct

You’ll typically be given a short window (often 30–45 days) to fix the issue — whether that’s submitting a corrected audit report or re-filing Form 5500 with the necessary documentation.

2. Risk of Penalties

If you don’t correct the deficiency, your plan could face:

  • DOL penalties (up to $2,670 per day for late or deficient filings)
  • IRS penalties for noncompliance
  • Increased scrutiny or a full audit of your plan

3. Possible Plan Disqualification

In severe or prolonged cases, the IRS may take steps to disqualify the plan, which could lead to significant tax consequences for both the employer and participants.

How to Resolve a 401(k) Audit Deficiency

Engage a Qualified CPA Immediately

Hire an independent auditor who specializes in employee benefit plan audits. A CPA with EBP experience can quickly assess what went wrong and issue a compliant audit report.

Work with Your TPA or Recordkeeper

Your third-party administrator can help gather missing documents, reconcile contribution records, and coordinate re-filing.

Re-file Form 5500 (If Required)

If the audit was missing or incomplete, you’ll likely need to file an amended Form 5500 with the corrected audit report attached.

Use the Delinquent Filer Voluntary Compliance Program (DFVCP)

If your plan missed a filing deadline, the DFVCP can help you reduce late filing penalties — but only if you act voluntarily before enforcement begins.

How to Avoid Future Deficiencies

  • Track your participant count at the start of each plan year
  • Engage your auditor early — ideally 90–120 days before your filing deadline
  • Use checklists for audit and Form 5500 compliance
  • Train internal staff on audit readiness and contribution tracking
  • Schedule an annual plan review with your TPA or benefits consultant

Facing a 401(k) audit deficiency can feel overwhelming, but it’s a solvable problem. The key is speed, transparency, and professional support. Acting quickly not only minimizes penalties but also demonstrates good faith and fiduciary responsibility to your participants — and to the regulators watching. You feel overwhelmed when you get a 401(k) audit deficiency but with quick action, professional help and the right 401k audit services you can get through this and save your plan.