Audit Requirements

[Guest lforesz]

A new plan is effective January 1, 2000 and allows for immediate eligibility for anyone employed on the effective date of the plan. Accordingly, there are 112 participants as of the first day of the plan year. I informed the client that an audit will be required, however, they are disagreeing. Can someone please confirm that I am not off base here. Many thanks!

[rcline46]

Over 100 at boy is audit material - show them the 5500 instructions! Have the party saying no quote YOU verse and chapter of why not.

[Guest RBeck]

An audit is generally required for plans with more than 100 participants at the beginning of the plan year, UNLESS the first year is a partial year of 7 months or less (page 6 5500 instructions), in which case the audit for the first year can be waived and the audit done in the second year covers the entire period from plan inception to the end of the second year.

[SLuskin]

Doesn't it matter what kind of plan it is? If you are filing the 5500 just for non pension welfare plans (ie fully insured health or dental), I thought no audit and no schedule H was required.

[Guest lforesz]

You are right, fully insured, self-insured, or combo welfare plans are exempt from the audit requirements. Unfortunately, this is a 401(k) Plan so those don't apply.

Good suggestion, though.

[JohnCheek]

Your client might be thinking of the 80/120 rule, which allows a plan that previously had under 100 participants, and therefore filed as a small plan (no audit), to elect to continue to file as a smal plan if total participants at beginning of year are between 80 and 120. Since your client did not file as a small plan last year, the election does not apply. You need an audit.

[Guest AJR]

Which schedule is required under the following scenario:

Cal Year Plan

Schedule H was filed for 1999

Ending participant count on the 1999 5500 - 104

No one entered on 1/1/2000

The instructions indicate that if the count is between 80-120 "you may elect to complete the return/report in the same category as was filed for the prior return/report." I'm interpreting this as the filer can choose which way to file. In my example above, the filer may choose to file an I or H since the count dropped below 120. Thus, to avoid the cost of an audit, the filer would choose to file a schedule I. Am I correct?

Thanks for your assistance.

[John A]

AJR,

No, you are not correct. Since a Schedule H was filed in 1999, choosing to file the same as the prior year would mean a Schedule H for 2000. You would only have the Schedule I choice for 2000 if a Schedule I had been filed for 1999 and the other requirements for the 80-120 rule were met.