New Audit requirements for small plans?

[Guest fender5150]

I have a client that insists they read this somewhere, but I haven't found anything:

She said all small 401ks and 403b will be subject to annual audit effective 2011 - Not just plans with 100 participants.

The company may adopt a SIMPLE because they are tired of all the rule changes, etc. Their HR person tries to stay on top of everything. So when the DOL issues an opinion or statement, I get an E-mail. Every time she hears a rumor..... well you know.

I don't mind. It's part of the process, and she's a very pleasant person.

Anyone heard anything about this?

Thanks,

Fender

www.401ktest.com

www.projectedfinancialstatements.com

[david rigby]

...subject to annual audit...

Aren't we all subject to audit all the time?

Or does this client have something more definitive?

[J Simmons]

Fender,

Is your client referring to having to have an independent annual audit done and the report attached to the Form 5500?

[austin3515]

Allow me...

Qualified Plans (i.e., non 403b)

Small plans have been POTENTIALLY subject to the audit requirement for four or five years now. HOWEVER, the only time they will be subject to an audit is if they screw up. For example, the audit exemption is maintained by:

1) Providing participants additional disclosures in the Summ. Ann. Report (i.e., the summary of 5500 for the participants) regarding where the money is held. This is NOT required if the participant receives their statement directly from a regulated financial institution or insurance company etc (in other words, most plans are all set). This is really tarteted at "pooled" plans where the participant gets a piece of paper off a laser printer from a TPA as evidence of their accounts each year.

2) Having adequate fidelity bond protection IF more than 5% of plan assets are not in "regular" investments. So for example, if 10% of plan assets are invested in a racing horse, or a coin collection, Real Estate, private equities, mortages, etc. additional fidelity bond protection is required, potentially above and beyond the regular 10% fidelity bond.

As you can see, maintaining the exemption is not particularly challenging, and I would therefore be surprised if any significant number of small plans have actually had to get an audit.

With respect to 403(b)'s what she says is true (I'm not sure of the exact effective date)--this represents a DRAMATIC change in 403(b) plans.

Compare this to the small plan audit waiver where the DOL really just wanted to deter "bad" fiduciaries from investing in garbage, and did not really want small plans to get audits.

[GBurns]

How will the IRS/DoL know that the exemption is maintained ?

How would the IRS/DoL know that something was screwed up unless they audit the plan?

I thought that the purpose of auditing was to see if everything was proper.

[K2retire]

This discussion seems to mixing details about the annual audit required to be performed by the plan's CPA unless the plan meets one of the audit exceptions and an audit by the IRS or DOL auditors.

How do they know things are done correctly? The form 5500 has questions about whether various aspects of the annual audit exemption have been met. And it is signed under penalty of perjury. The answers to various questions on Schedule I often prompt further inquiry from the regulating bodies.

Certainly one purpose of random audits by the government agencies is to verify that the plan is being operated the way it should be. Often the government auditors will come calling based on complaints by participants. It seems unlikely that the government's audit budget has been increased sufficiently to allow a dramatic increase in that type of audit.

[Guest Sieve]

We're mixing apples & oranges.

The question appears to be related to the requirement of an independent audit to accompany the Form 5500 filing (although fender has not confirmed that)--which relatively recently (EGTRRA?) changed substantially to potentially remove the blanket exemption to plans of under 100.

GBurns and David Rigby, on the other hand, are talking about being subject to random audit by the IRS or DOL.

The latter has not changed--anyone filing a Form 5500 remains subject to a random IRS or DOL audit, regardless of the employer size and regardless of the particular form or schedules filed as part of the annual return. It's the former that is being questioned by the OP as being broadened even further

I, for one, have not heard of anything to suggest that consideration is being given to removing the "small" employer Form 5500 annual independent audit exemption.

[Bird]

Sieve-

The question appears to be related to the requirement of an independent audit to accompany the Form 5500 filing (although fender has not confirmed that)--which relatively recently (EGTRRA?) changed substantially to potentially remove the blanket exemption to plans of under 100.

DOL final regs 10/19/2000, FWIW. I agree with everything else you said.

[Guest Sieve]

Bird --

For some of us, 2000 is "relatively recently". For others, time just flies when we're having fun. For me, both apply. (But, I have to admit--I didn't realize it was that long ago!!).

[quinnfield]

Here's a good summary of the Small Plan Audit Waiver Regulation promulgated in October 2000:

http://www.dol.gov/ebsa/faqs/faq_auditwaiver.html

[Guest fender5150]

To clarify: I was wondering if anyone heard about an annual audit requirement comming up for small plans. Sorry for the mis-communication.

[Bird]

To clarify: I was wondering if anyone heard about an annual audit requirement comming up for small plans. Sorry for the mis-communication.

No. There is no such thing. Whoever came up with this rumor needs to provide substantiation for it.