80 - 120 Rule

[Guest jetfaninmn]

On 1/1/05 Plan a plan had 97 participants. In the previous year, they were an audited plan. Here is what there accountant informed them:

" If a plan had 80 or more employees that were participating, eligible or eligible to participate, the plan must file the same Form 5500 and therefore need an audit"

The client says the accountant must be right. The DOL rep at the accounting office in Washington told me: "I always have problems with what TPA's do. IQPA's have a code of ethics, you don't and I don't care what TPA's say."

Please help me. I have always understood that if a plan has less than 100 lives they file as a small plan and if they have between 80 and 120, they MAY file the same way as last year.

Thanks!

[Disco Stu]

Here's what the instructions to Form 5500 say.

Generally, a return/report filed for a pension benefit plan or welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year should be completed following the requirements below for a ‘‘small plan,’’ and a return/report filed for a plan that covered 100 or more participants as of the beginning of the plan year should be completed following the requirements below for a ‘‘large plan.’’

Use the number of participants required to be entered in line 6 of the Form 5500 to determine whether a plan is a “small plan” or “large plan.

(1) 80-120 Participant Rule: If the number of participants reported on line 6 is between 80 and 120, and a Form 5500 was filed for the prior plan year, you may elect to complete the return/report in the same category (‘‘large plan’’ or ‘‘small plan’’)as was filed for the prior return/report.

"May" is the key word in the 80-120 rule. I'd ask the accountant to provide you a cite to the basis for their opinion.

[BG5150]

Basically, the bottom number of the 80-120 rule goes like this:

Assuming the plan did an H last time, as long as the count stays above 80, the plan can continue to file the H. If it is under 100, it may file an H or I. If the plan goes below 80, it mst file an I.

In this case, I'd do an I. I think the accountant just wants to do the audit to generate fees. Or even just to keep it simple and continue to do an H, this way he (or she) doesn't have to revisit whether or not an audit will be done on the plan year-to-year.

[Guest b2kates]

I agree with the prior responses. From a planniing standpoint, the issue should be the likelyhood that the plan will have more than 120 participants in the near future.

It is possible that the accountant wants to avoid having to audit 2 years at once; but if it is likely that the plan will stay under the 120 participant count, the more economical approach is to elect to file with Schedule I.

Having presented for the AICPA and numerous state CPA societies on how to Audit Employee Benefit plans, it is my experience that a competent audit is not inexpensive, expose the CPA to significant risk, but on the good side force plan sponsors to look at their level of ERISA compliance

[Guest ehs]

Can someone tell me where to locate the site, cite or authority is on the 80-120 threshold?

[WDIK]

cite - 29 CFR 2520.103-1(d)

site - http://www.dol.gov/dol/allcfr/Title_29/Par...R2520.103-1.htm