never filed 5500s....or did anything right

[Santo Gold]

I was handed a small MP plan that started in 1997. Document was properly established and the accountant has been doing annual 5% contibution requirement, correctly I hope (will be checking that, as well as distribution, vesting, etc.). But, 5500's were never filed. I want to file all of these now, using the small plan filer program - $1,500 for 2+ old filings. But, how to remedy the fact that they never had a fidelity bond to meet the small plan audit waiver from 2002 - 2005? Do they simply have to now have these audits done en masse with the filing? Any way around this since the filings and audits are now way late?

[Kevin C]

Does the Plan have nonqualifying assets? The bonding requirement only applies if the nonqualifying assets are more than 5% of the assets.

[Bird]

A bond is always required, unless it's a one-man plan. The audit requirement does not apply, for small plans, if:

They have the usual 10% bond, and at least 95% of the plan assets constitute “qualifying plan assets” or additional bonding is obtained (not less than the value of non-qualifying assets), or

The accounts are self-directed.

(Plus yada-yada about disclosure in SAR and participants getting statements.)

Unless the assets were self-directed, I don't think this plan met the exemption. Of course, if it was self-directed, there were not SARs, so they didn't meet the disclosure requirements...

This is a really good question. Fixing it right will cost way more than the plan is worth, no doubt.

[Santo Gold]

Bird - are you saying that all plans that are not self-directed must have the small plan audit? So, even a 10 life PS plan that has the bond, has enough qualifying assets, but is trustee directed, would require the audit?

[Bird]

No. (There's an "or" in there; sorry if I didn't outline it so great.)

But in this case, there was no bond, and that's one of the requirements for the exemption from the audit.

[Belgarath]

FWIW, I understand things a little differently. I don't read the DOL regs (2520.104-46) as requiring a bond purely for purposes of the SPAW requirement. My take is that the audit waiver is independent of the bonding requirement, although they may become interrelated and the normal required 10% bond can assist, as I'll get to in a minute. (b)(1)(i)(B)(2) of that section requires SAR disclosure of the name of the bonding company for purposes of paragraph (b)(1)(i)(A)(2). And the (b)(1)(i)(A)(2) is an "or" if you don't meet the 95% requirement, so if you do meet it, then (A)(2) doesn't apply.

If you meet the 95% qualifying asset requirement and the disclosure requirement, then no audit required, and no bond required, for SPAW audit waiver requirement only.

Now, assuming plan is subject to Title I, then the normal 10% minimum bonding requirement applies, independent of the audit waiver issue. And if you are bonded for 10%, and your non-qualifying assets are 10% or less, then you are still ok. So assuming you comply with disclosure rules...

<or = to 5% in non qualifying assets - no bond required for SPAW purposes.

>5% but <or = to 10% in nonqualifying assets - bond would be required. But assuming you have your minimum 10% required bond, still ok.

>10% in non qualifying assets, then additional bonding necessary to the extent your existing bond (which might be greater than 10% already) doesn't cover the entire amount of non qualifying assets.

Whatcha think?

[Kevin C]

Look at the examples in 2520.104-46. A bond is not required to aviod an audit unless non-qualifying assets are in excess of 5% of plan assets. If non-qualifying assets are >5% the bond coverage must be at least as much as the value of the non-qualifying assets. I found the second example the most interesting. A bond of less than 10% of assets will still exempt a small plan from the audit requirement as long as the coverage is at least equal to the non-qualifying assets.

Examples. Plan A, which reports on a calendar year basis, has total assets of $600,000 as of the end of the 1999 plan year. Plan A's assets, as of the end of year, include: investments in various bank, insurance company and mutual fund products of $520,000; investments in qualifying employer securities of $40,000; participant loans, meeting the requirements of ERISA section 408(b)(1), totaling $20,000; and a $20,000 investment in a real estate limited partnership. Because the only asset of the plan that does not constitute a "qualifying plan asset" is the $20,000 real estate investment and that investment represents less than 5% of the plan's total assets, no bond would be required under the proposal as a condition for the waiver for the 2000 plan year. By contrast, Plan B also has total assets of $600,000 as of the end of the 1999 plan year, of which $558,000 constitutes "qualifying plan assets" and $42,000 constitutes non-qualifying plan assets. Because 7% --more than 5% --of Plan B's assets do not constitute "qualifying plan assets," Plan B, as a condition to electing the waiver for the 2000 plan year, must ensure that it has a fidelity bond in an amount equal to at least $42,000 covering persons handling non-qualifying plan assets. Inasmuch as compliance with section 412 requires the amount of bonds to be not less than 10% of the amount of all the plan's funds or other property handled, the bond acquired for section 412 purposes may be adequate to cover the non-qualifying plan assets without an increase (i.e., if the amount of the bond determined to be needed for the relevant persons for section 412 purposes is at least $42,000). As demonstrated by the foregoing example, where a plan has more than 5% of its assets in non-qualifying plan assets, the bond required by the proposal is for the total amount of the non-qualifying plan assets, not just the amount in excess of 5%. [Added March 9, 1978, by 43 FR 10130. Amended October 19, 2000 by 65 FR 62957.]

As to the SAR's, they were obviously not done timely, but can be done now. I don't see anything in the reg that says the SAR's have to be timely, only that they be provided with the proper disclosures.

[Bird]

Whatcha think?

I think you're right. I reviewed my old notes and the regs and I guess my mind went off on its own.

Sorry to Kevin C for having to post all that!