Key points covered in this article:

• Employee benefit plan errors often occur in areas such as eligibility, deferrals and contributions, distributions, compliance testing, and plan administration. Left uncorrected, these mistakes can create regulatory risk, increase audit scrutiny, and potentially jeopardize a plan’s tax-qualified status.
• The IRS and DOL offer several correction programs that can help plan sponsors address errors and restore compliance, including self-correction, voluntary correction, and delinquent filing relief options. Early identification is especially important because it often expands the available correction paths and reduces the complexity of the response.
• Ongoing compliance monitoring, strong internal controls, and coordination across payroll, HR, and plan administration can help prevent common failures before they escalate. When issues are identified and corrected proactively, it also demonstrates stronger oversight during an audit.

An employee benefit plan is an employer-sponsored program designed to provide benefits to employees and their beneficiaries. These plans, including qualified retirement plans, 403(b) plans, SEP plans, SIMPLE IRAs, and governmental 457(b) plans, are overseen by both the IRS and the DOL, and plan sponsors are ultimately responsible for administration and compliance, even when working with third-party administrators.  

Errors in plan administration happen more often than many realize. Knowing where they tend to occur is a great place to start, but knowing how to identify and correct them is what really matters. Plans that leave errors unaddressed can face compliance risks, increased audit scrutiny, and, in serious cases, plan disqualification. Fortunately, several correction programs are available to help resolve many common failures and restore compliance. 

Common Employee Benefit Plan Errors

Which errors are most common? Knowing where errors are likely to occur gives plan sponsors and human resources a starting point for self-assessment and correction, if needed.  

Eligibility Failures — These errors occur when eligible employees are not enrolled on time, are improperly excluded from participation, or are allowed to participate before becoming eligible. With the phased rollout of SECURE 2.0, plan sponsors need to pay special attention to tracking the eligibility of employees and establish standardized procedures for all departments to prevent these errors. 

Deferral and Contribution Errors — These errors involve employee deferrals and employer contributions. Common examples include incorrect deferral elections, contribution rates entered incorrectly, miscalculated matching contributions, and late remittances. Any of these errors will likely require corrective action and additional reporting. The underlying cause may be related to simple payroll or data entry mistakes. It could even be a lack of coordination between departments. Implementing strong internal controls can help avoid these issues.  

Distribution Errors — Errors can occur when participants receive distributions that do not comply with plan provisions. Examples include distributions made before a participant is eligible, missed required minimum distributions (RMDs), hardship withdrawals without proper documentation, or participant loans that do not follow plan requirements. Any of these issues can trigger a host of compliance issues that require correction.  

Testing Failures — Nondiscrimination, coverage, and other compliance tests help ensure benefits do not disproportionately favor highly compensated employees (HCEs). When a plan fails one of these tests, corrective action is generally required within specified timeframes to preserve compliance. 

Plan Administration Errors — These errors occur when plan operations do not match up with the written plan document. For example, many retirement plans have implemented SECURE 2.0 provisions in practice, but they must still adopt the corresponding plan amendments by the end of 2026. Failing to keep plan documents aligned with plan operations can create compliance issues and complicate corrections. 

Correction Programs for Employee Benefit Plans

There are several correction programs available to help plan sponsors address compliance failures. The appropriate program depends on the nature of the error and the agency involved. 

IRS Correction Programs 

The IRS offers several programs that allow plan sponsors to correct certain failures and maintain a plan’s tax-favored status, and they are part of the Employee Plans Compliance Resolution System (EPCRS).  

The Self-Correction Program (SCP) allows plan sponsors to correct many operational failures without IRS approval when certain requirements are met. Most operational failures can be self-corrected within 18 months of discovery, making early identification particularly important. However, SCP is not available for all types of failures, including certain demographic and employer eligibility failures. SECURE 2.0 also expanded self-correction opportunities for certain eligible inadvertent failures. 

The Voluntary Correction Program (VCP) allows sponsors to voluntarily disclose and correct failures before an IRS examination begins. VCP generally accommodates a broader range of failures than SCP but requires IRS review and approval. 

The Audit Closing Agreement Program (Audit CAP) can be used when failures are discovered during an IRS audit. Under Audit CAP, the sponsor corrects the failure and pays a penalty to preserve the plan’s tax-favored status. 

DOL Correction Programs 

The DOL offers several correction programs for fiduciary and reporting failures under ERISA. 

The Voluntary Fiduciary Correction Program (VFCP) allows plan sponsors and fiduciaries to correct certain fiduciary breaches and prohibited transactions. Sponsors that successfully complete the application and program receive a “no action” letter from the DOL documenting the correction. 

The Self-Correction Program (SCC) is a newer and more streamlined option for smaller errors. Late contributions or loan repayments may be self-corrected if lost earnings are $1,000 or less and the correction is made within 180 days. Certain inadvertent loan failures may also qualify, but only if they are eligible under the IRS correction program as well. This is generally a quicker option, but it does not provide a “no action” letter.  

The Delinquent Filer Voluntary Compliance Program (DFVCP) reduces penalties for voluntarily correcting late Form 5500 filings. Penalties for late filing without an extension can reach $250 per day from the DOL and more than $2,500 per day from the IRS. 

Audit and Compliance Considerations

Most compliance problems are easier to address before the audit starts. Many plan sponsors review plan operations throughout the year, whether through periodic self-checks, conversations with advisors, or reviews of payroll and administrative processes. Finding an issue early often creates more options for correction and avoids having to address it under audit deadlines. Because auditors must remain independent, this type of ongoing compliance support typically comes from advisors rather than the audit team. 

Auditors review compliance as part of the audit, but they also review how plan sponsors respond when problems arise. An error that was identified and corrected tells a different story than one that remained undiscovered until the audit. It shows that plan administrators are monitoring the plan and taking action. By contrast, unresolved errors often lead to additional questions and follow-up procedures. 

Looking Ahead

A plan’s tax-qualified status depends on compliance with IRS and DOL regulations. While compliance is important from a regulatory standpoint, it also helps ensure the plan operates as intended and that employees and beneficiaries receive the benefits outlined in the plan. If you have questions about EBP audits or need assistance identifying or correcting errors, contact Tracey Dail, Partner on PBMares’ Employee Benefit Plan Audit team.