plan audit

[Guest Dan Shea]

had an advisor call and ask whether splitting a plan on eligibility would then create 2 plans (hourly vs salaried) would lower count and avoid audit requirement. My thought is no does not void requirement. the "plan" would still be under audit requirement because ownership plan document etc, among other reasons. I could not find a direct comfirmation any help. Found answer ignore please

[Tom Poje]

ah, this question, again....

(in other words..ethically? legally? will the DOL take the trouble to pursue the issue?...etc.)

or maybe Is this done? YES

Should it be done? that is open to debate.

the question was raised at the 2000 annual ASPPA meeting, in the general Q&A session. The questions at this session were answered by Joe Canary, Scott Albert, Lou Campagna and Mabel Capolongo of the Department of Labor:

Question 5: A 401(k) plan has 150 participants. The plan must file a full 5500 and have an audit by an accounting firm. Due to the cost of the audit ($10,000 or $15,000), my suggestion to the client is to split the plan into two plans, each with 75 participants. For 2000 there will be an audit. The plans could be split into two plans on December 31, 2000. Therefore, on January 1, 2001, both plans have less than 100 participants and no audit required. For tax qualification testing, they can be permissively aggregated. In fact, my plan is to administer as if it was one plan and just separate for 5500 purposes. Is my conclusion correct?

Answer: This question raises issues of avoidance and evasion. It is not certain that you really have two plans for purposes of Title I of ERISA in this instance--even if there may be two plans for Internal Revenue Code purposes. In Advisory Opinion 84-35A, the Department stated it would consider, among others, the following factors in determining whether there is a single plan or several plans in existence: who established and maintains the plans, the process and purposes of plan formation, the rights and privileges of plan participants and the presence of any risk pooling, i.e., whether the assets of one plan are available to pay benefits to participants of the other plan. This Advisory Opinion also notes that the Internal Revenue Service has cited the existence or absence of risk pooling between funds as relevant to the determination of single plan status. See §1.414(1)-1(b) 26 C.F.R. §1.414(1)-1(b). In DOL Advisory Opinion 96-16A, the Department stated its position that whether there is a single plan or multiple plans is an inherently factual question on which the Department ordinarily will not opine in the Advisory Opinion process.

for the rest of the discussion see http://benefitslink.com/boards/lofiversion...php/t46035.html

[Andy the Actuary]

Suppose under a plan that had 1,000 participants could impose 25 eligibility criteria and that each eligibility group within the plan satisfied coverage rules but had but 40 participants. What are your thoughts now? Also, if existing plan, how are you going to go back and apply separate eligibility criteria retroactively?

ERISA exempts from audit a plan with fewer than 100 participants, not a plan containing multiple structures all of which cover fewer than 100 participants.

Tell advisor "no" and tell him he/she would need to demonstrate what is proposed is doable.

[jpod]

Don't you think a court would likely interpret the Title I term "plan" in the same way that it is defined under 414(l) of the Code, given that 414(l) was enacted by ERISA and there is no other definition of "plan" in Title I?

[ESOP Guy]

Back in 2010 I took a Sungard Form 5500 class lead by Derrin. He mentioned you could split a plan say into one plan that had everyone with last names A-N and the next plan with last names M-Z to avoid the large plan threshold.

I went back and looked they were even willing to mention splitting the plans into two plans in the handouts.

If you have a relationship with Sungard you might want to see if you can get the reasoning behind their thinking.

To me this seems like a very risky choice.

[Andy the Actuary]

So, who out there is going to file a 5500 that reports 180 participants and not attach an auditor's report?

If you have such kahones, how will you answer Schedule H, Part III, question 3d????

[jpod]

Andy, if you were responding to my 414(l) suggestion, I am not following you. If you were responding to ESOP Guy, I think he was suggesting that Sungard was recommending a 414(l) spin-off or split-up, so that each plan would have 90 participants (in your example) at the beginning of the following plan year, so I'm not following you there either.

[Bill Presson]

So, who out there is going to file a 5500 that reports 180 participants and not attach an auditor's report?

If you have such kahones, how will you answer Schedule H, Part III, question 3d????

Nobody. As you pointed out, there has to be separate plans; not separate components.

[Peter Gulia]

Even when asked an obviously leading question with a suggested answer that could support a different outcome, some Labor department staff suggested (in 2009) that "it would be reasonable" to look to the plans' documents to "determine" whether they are separate plans.

See Q&A 14 in http://www.americanbar.org/content/dam/aba...uthcheckdam.pdf

Of course, whether with ABA, ASPPA, or any "seminar law" situation, none of these answers binds any of the government agencies.

Some interpretations ask what assets are available to respond to a participant's (or his or her beneficiary's) claim. But splitting what otherwise could be one pool of assets into two or more might not matter if even an undivided pool doesn't have much purchasing power.

Don't get me wrong; I do NOT advocate avoiding plan audits. I'm just describing what others have said.

[jpod]

I can't think of a valid theory for challenging a perfectly executed 414(l) spin-off, even one done for the sole purpose of avoiding the audit requirement starting the next plan year. I can understand DOL's motivation to wish there was such a theory and to suggest that one exists, but that doesn't make it the law.

[Andy the Actuary]

Andy, if you were responding to my 414(l) suggestion, I am not following you. If you were responding to ESOP Guy, I think he was suggesting that Sungard was recommending a 414(l) spin-off or split-up, so that each plan would have 90 participants (in your example) at the beginning of the following plan year, so I'm not following you there either.

This was not a response to 414(l) suggestion. I find it difficult to envision that the auditor is charging more than the costs and confusions of administering a second plan. If the case, get a new auditor.

[K2retire]

This was not a response to 414(l) suggestion. I find it difficult to envision that the auditor is charging more than the costs and confusions of administering a second plan. If the case, get a new auditor.

Andy, where are you finding auditors? What we typically see in the Midwest is that the auditor charges 2 or more times what the plan administration costs. In the case of a bundled provider, the audit can often be 10 times the annual administration fee.

[GMK]

the auditor charges 2 or more times what the plan administration costs. In the case of a bundled provider, the audit can often be 10 times the annual administration fee.

Our audit costs are 3 times administration costs.

Maybe it's time to migrate south to Saint Louis for cheap audits and less brutal winters.

[Andy the Actuary]

the auditor charges 2 or more times what the plan administration costs. In the case of a bundled provider, the audit can often be 10 times the annual administration fee.

Our audit costs are 3 times administration costs.

Maybe it's time to migrate south to Saint Louis for cheap audits and less brutal winters.

Cheap is in the eye of the payor. Here are a couple examples of DB audit costs: 360 participants, $13K; 175 participant, $5K. There are smaller firms that are willing to undertake the audit for far less than the big boys. On the 3 to 10 times, are you talking about DB or DC plan audits?

As far as the weather, that's somewhat relative. In fact, my relatives find St. Louis brutal.

[GMK]

are you talking about DB or DC plan audits?

Point taken. We're a small ESOP. So, I guess we'll continue to bask in arctic blasts.

Congrats, by the way, to your Cardinals.

[Andy the Actuary]

Congrats, by the way, to your Cardinals.

One strike away twice from being a forgotten team.

[K2retire]

the auditor charges 2 or more times what the plan administration costs. In the case of a bundled provider, the audit can often be 10 times the annual administration fee.

Our audit costs are 3 times administration costs.

Maybe it's time to migrate south to Saint Louis for cheap audits and less brutal winters.

Cheap is in the eye of the payor. Here are a couple examples of DB audit costs: 360 participants, $13K; 175 participant, $5K. There are smaller firms that are willing to undertake the audit for far less than the big boys. On the 3 to 10 times, are you talking about DB or DC plan audits?

As far as the weather, that's somewhat relative. In fact, my relatives find St. Louis brutal.

We're seeing $8-15,000 for DC plans.

[Kevin C]

We're seeing $8-15,000 for DC plans.

We are seeing the same range for DC plans. And, that is using the smaller CPA firms. The large firms are much higher. Even when you include the cost of another plan document and extra administration costs for two plans, it is still a lot less expensive to have two plans.