Large Plan Audits

[Guest m.n.ouellette]

Hello. I am administering a large plan, and it's my only large plan. Do I understand the 5500 instructions correctly: if a plan (no matter of size) is "fully-insured" it does not need to have an independent audit?? If it is NOT fully-insured, a large plan MUST have an independent audit.

Am I correct? Any words of advice on this are GREATLY appreciated!

m.o.

[JanetM]

If it (and I am assuming you are talking about welfare plan) is not fully insured and funded from sponsors general assets you still avoid the audit.

Is this a VEBA or funded plan?

[Guest m.n.ouellette]

No, actually this plan is a Profit Sharing 401(k). How can we aviod the audit?? Thanks!

[BFree]

Do you believe your Profit Sharing plan is fully insured?

[E as in ERISA]

"Fully insured" is very limited for pension purposes. It does not apply simply because insurance products are used for funding. They need to be allocated contracts where each participants benefits are guaranteed. See DOL regs 2520.104-44(b)(2)

The 5500 instructions say:

For purposes of the annual return/report and the

alternative method of compliance set forth in 29 CFR

2520.104-44, a contract is considered to be ‘‘allocated’’ only if

the insurance company or organization that issued the contract

unconditionally guarantees, upon receipt of the required

premium or consideration, to provide a retirement benefit of a

specified amount. This amount must be provided to each

participant without adjustment for fluctuations in the market

value of the underlying assets of the company or organization,

and each participant must have a legal right to such benefits,

which is legally enforceable directly against the insurance

company or organization. For example, deposit administration,

immediate participation guarantee, and guaranteed investment

contracts are NOT allocated contracts for Form 5500 purposes.

[Guest m.n.ouellette]

Hi all. I've learned today that the assets of this 401(k) are and have been in money market only. I will advise them to seek an audit. Don't you agree? Thanks again!

[JanetM]

Yes get an audit, caveat - unless can avoid using 80/120 rule. Then tell them they need professional help running this plan. If 100% of assets are in money market they may have some serious issues (unless this group is all 64.5 years old and about to retire).

Quick question - you administer the plan and don't know what assets are invested in? What do you mean by "I administer"?

[Guest m.n.ouellette]

Janet, it's a brand new plan for our firm...began in 2004. There was an investment plan, signed and agreed upon. However, the trustee has been non-communicative, and he has not allowed the broker to move the money!! The broker is firing the client, as am I. There is no communication, and I cannot be in any way responsible for their actions (or lack thereof!). I was preparing a release letter, and wanted to put in writing about the requirement of an audit. Hence, these questions today! You and the others have been very helpful...I will let the trustee know he should seek an audit. At the same time as finding a enw administrator! Thanks again!