Small plan audits

[pbarrett]

The CPA doing the small plan audits for us (for the 2002 year) is saying we need to prepare the H versus the I. We get errors preparing the H from the software package because there are less than 100 participants. (These are audits due to the % of nonqualified assets held.) Is the CPA correct?

[R. Butler]

You only file the Schedule H if you are filing as a large plan. The 5500 instructions give you a chart of when to file each schedule.

[Blinky the 3-eyed Fish]

Why didn't these small plans get a bond? What small plan would choose an audit?

[pbarrett]

On our plans, the bond was not increased in time for the 2002 year (and in many cases the 2003 year). It is my understanding the "increased" bond had to be in place 1/1/02. Right?

Also, we checked with 3 bonding companies and found the bond would run $2500 to $5000 for these plans. Our auditor charges $1500. The clients opted for the audits to save money.

Am I missing something here?

[Blinky the 3-eyed Fish]

The bond for the 2002 year would have to be in place within a reasonable time in 2002, not at 1/1/2002. The prices you quote for obtaining these bonds is so far outside of the market unless you are obtaining bonds for $20,000,000. I quickly grabbed a file and a client of ours got a $630,000 bond with Travelers for an annual premimum of $251. What bonding companies did you talk to? Are you sure they understood it was an ERISA fidelity bond?

I smell money burning.

[R. Butler]

I echo everything Blink said. $2,500 to $3,000? Thats 10-20 years of premiums.

[WDIK]

I don't know about other companies, but at least Colonial Surety has different premium rates for qualified versus non-qualified assets. The non-qualified asset rates are over four times the qualified asset rates.

But still, for $2,500 you could purchase a $1.1 million bond for non-qualified assets.

[pbarrett]

We went thru a broker who has done business with us for several years and National Bond Specialists. We were quoted $5 per $1000 for the nonqualified assets. The Plans we are most concerned about have land, restaurants, antique watches (if you can believe it- transferred in from a really old db plan)and art. Do you think the type of non-qualified asset has anything to do with the pricing we're being quoted or we're just getting ripped off? I know the broker and NBS knows we're talking about fiduciary bonds for pensions because we had to fill out forms disclosing what's held in the Trust. Now in fairness, current (within 12- 24 months) appraisals have not been done. All have had an appraisal within the last 3 years though.

Another side question, if the client gets the audit done for 2002 and ups the bond today for 2003, would that be considered a "reasonable time" for the bond purchase to avoid another audit for the 2003 year?

[Blinky the 3-eyed Fish]

I think your getting ripped off. Shop around some more.

Since you haven't even yet completed the 2002 5500 for these plans, you are certainly within the timeframe of reasonable for 2003.

[Guest KristinaGK]

My question is, How huge are the unqualified plan assets in these plans??? The bond increase for a plan to waive the small plan audit requirement is only the amount of the non-qualified plan assets. It is not the amount of the total plan assets.

Any assets held by a financial insititution need only be listed on the SAR, which is the second part of waiving the small plan audit requirement.

[Guest quinn the car fixer]

would you need either the bond or audit if the plan's assets for 2003 were all with the owner? new part's for 2003 but no contrib was made so no acct balances but they are part's for the count.

[WDIK]

If you are required to file Form 5500 instead of Form 5500-EZ the audit/bond requirements apply.

[Guest anonymous coward]

Also, Kristina, remember that the 415 bonding requirement is a separate requirement from the non-qualifying bond coverage, so the rate might still be inflated if disclosure of the non-qual. was required by the underwriter.

[Guest james moyna]

An audit for $1,500? That seems very low to me.

Does the auditor understand that they need to audit allocations to participant accounts, contributions, distributions. The auditor also needs to document, understand, and test internal controls in place, etc.?