401(k) Plans with over 100 participants?

[Guest Michael Anderson]

We have an opportunity to get a 401(k) Plan with over 100 participants. We generally specialize in small plans with higher assets. The investments are with listed mutual funds. Can anyone tell me if there are different rules that apply when there is 100+? Or direct me somewhere to find out? Is there a special audit that needs to be done? etc... Thanks!

[stephen]

Yes an audit must be done for the 5500 and you need to file Schedule H instead of Schedule I with the 5500. There is an exception for plans who have no more than 120 participants allowing them to maintain small plan status that may apply to the plan.

[Guest Michael Anderson]

The plan would be around 192, so they would have to file for a large plan. I am sure that it varies considerably, but does anyone have a rough estimate of what an independent audit would cost?

[RCK]

As a ball park guess, think $5,000 to $10,000. Less for a simple plan, more for brokerage accounts, etc. With SOX affecting the whole accounting industry, it is a seller's market.

Keep in mind that they needed an audit before they got to you, and they had an auditor for that. There would be no reason to change auditors just because they changed recordkeepers.

RCK

[Demosthenes]

Another potential cost item hinges on whether or not your firm has a SAS 70 which would permit the client's auditor to perform a limited scope audit.

If the prior RK had a SAS 70 and you don't, the auditor's charges to the client will probably rise since the auditor can no longer replay on the service provider's SAS 70.

The cost to obtain a SAS 70 can be significant depending on the auditing firm, the size of the service provider, type of business etc etc. I couldn't even give you a SWAG.

[Guest Michael Anderson]

The 5K mark is what we were guessing - we will have more information on what they pay now after meeting with them today. Thanks for the all the information.

[BeckyMiller]

Just to clarify - the ability to perform a limited scope audit is not contingent upon the service provider having a SAS 70. The limited scope audit is restricted to plans where assets can be certified by a bank or insurance company. See ERISA regs. 2520-103-5 and -8.

A Type II SAS 70 report on the service provider describes for the auditor the internal controls of the service provider and whether they are working. This can reduce the amount of effort that the auditor has to put into the engagement. They will bug you less, but it doesn't create the opportunity for a limited scope report.

Just like a TPA needs to decide if the cost of getting a Type II SAS 70 is justified, the auditor needs to decide if it would be less work to perform normal audit procedures or spend the time reviewing the SAS 70 and determining if certain procedures can be cut back. If the auditor only audits one plan that you administer, they are equally likely to do normal audit procedures, as to study the SAS 70 and reduce their procedures.