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plan audits


Guest CAM223

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Guest CAM223

A company has a 401k plan with less than 120 participants. They have acquired a

second company. When the second company's employees become eligible they will have well over the 120 participant count that requires an audit. Is there any

problem in establishing a second identical plan for the new company's employees to avoid the audit requirement for both plans? Is there any problem in including

all new hires in the original company in the second plan to assure that the first remains below the audit level of 120 participants?

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As long as the assets are not commingled you should be okay. I'd issue a strong caveat that there better be a legitimate business reason for separate plans (i.e, two different companies/divisions). You don't want it to look like the point of the arrangement is to avoid an audit. I don't think that's a good way to make friends with the DOL.

What's more, I'm not sure you'd save much money considering the cost of admistering two plans is probaly close to double the cost to administering one plan for everyone...

Austin Powers, CPA, QPA, ERPA

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Guest Pensions in Paradise
I'd issue a strong caveat that there better be a legitimate business reason for separate plans (i.e, two different companies/divisions).

Could you expand on your reasoning behind this statement. There is nothing that prohibits a company from establishing more than one plan. For example, if a company wanted to it could establish one plan for management, one plan for staff, and one plan for janitors. There does not have to be a "legitimate business reason" for doing so.

Obviously the company would have to consider the higher costs of administering separate plans, but from my experience the administrative cost of a second plan would be significantly less than the cost of an audit.

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I see no reason why they can't have two identical plans, but based upon the eligibility criteria described the plans may need to be aggregated for testing purposes.

Yes, it might avoid an audit but not much else, plus the cost of two plans might outweigh the savings from avoiding the audit.

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SWHT

Andy, I'd love to join in this discussion, but I have to go get randomly tested for steroid use.

Lori Friedman

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My only point is that if you design the plans solely to avoid the audit requirement that you might upset the DOL. Let's say you had one plan with 130 people, and then you break the Plan into 2 plans for no good reason. Wouldn't that raise some red flags? I wouldn't do it, that's all. No regs to cite, because there are none.

Austin Powers, CPA, QPA, ERPA

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Thanks Kirk - 18 months? OMG that means I could still have a year to adjust.

I just figure for the next few months I will always wear blue so the oxygen deprivation isn't as appearant.

JanetM CPA, MBA

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Guest Willie

These types of posts actually waste other people's time as well. I LOVE sports but that's not why I come to this site. I usually take a couple of minutes during my lunch hour to read these boards and it is frustrating when I have to sift through all of this banter to find legitimate answers to the posters question. Isn't there another forum on the site that could be used to discuss sports and argue with other posters over non-pension related issues?

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Aren't post complaining about people wasting time a waste of time themselves? I think of them like the technique of back burning a forest fire. You are actually lighting a fire, which is what you are trying to put out in the first place, and sure it could help to put out the fire and prevent further damage. However, the winds could shift and the back burn could even start a bigger fire.

It always seems to be windy in here.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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I have had a long-standing concern with these Boards that there are some people who think that they can come here and get advice that they should be getting from legal counsel or other service providers. (It's mostly non-practioners -- those who aren't regulars -- who I'm primarily concerned about. This is not aimed at anyone on this post). I think that the Boards should be plastered with messages reminding people that any comments made here should not be considered legal advice (same as what you would see on any practitioner's web site).

On the other hand, I think that the Boards are an invaluable tool for sharing news, thoughts, practical experience, opinions, interpretations among practioners with a variety of experience. And in that context, I think that a certain amount of friendly banter is to be expected.

SWH&WTBFFTWKT!!!

(Stop wasting Harwood's & Willie's Time But Feel Free to Waste Katherine's Time!!!)

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Guest Willie

I appreciate both of your opinions and also enjoy a little humor now and then. I have limited time during the day and this site has great information. It just gets a little frustrating when you have to read so many posts to find the answer and I was merely asking if another forum within the site would be more appropriate.

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SWH&WT

Thanks for the moral support, Katherine et al.

Now, about those people who post pictures of MAMMALS, REPTILES, FELINES, AQUATIC CREATURES, CARTOONS, MOVIES, ANIMATIONS, BABIES, SISSIES, ACRONYMS, ETC. Stop misdirecting my line of vision which would obviously be more productive studying your thesis-like contributions and legal advice!

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Going back to the question - there is an old DOL Advisory opinion. I can't remember the number, but it was issued to the Kindel & Anderson law firm, that dealt with this question. If I recall, it implied, but did not specifically hold that if one plan needed the other to be considered qualified under the Code, that the DOL would consider them to be a single plan.

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