80 - 120 Participant Rule

[Guest A White]

A 401k plan has over 100 eligible participants at the beginning of the year for the first time. (90 last year 104 this.) They filed a 5500 last year using schedule I. This year we filed a 5500 again with schedule I and no audit because of the 80 -120 rule.

In the past I have understood that this audit exemption could only be used in the first year the plan went over 100 eligible. However, the instructions for form 5500, (Section5: What To File) seems to indicate that you can elect to file as a large plan or a small plan as long as you do not go over 120.

Questions:

Does a plan need an independent audit if it is the second year that they have between 100 and 120 participants?

Once the plan files schedule H with an audit can they go back to schedule I and no audit if their eligible participants at the beginning of the year drop below 100?

Thank You

[WDIK]

Does a plan need an independent audit if it is the second year that they have between 100 and 120 participants?

It is my understanding that you can still file Schedule I because that form was filed for the previous year.

Once the plan files schedule H with an audit can they go back to schedule I and no audit if their eligible participants at the beginning of the year drop below 100?

Yes.

[Below Ground]

WDIK is correct. The 120 Rule is not a one time exemption. An I can be used until they reach the 120 mark.