Why Audit?

[Andy the Actuary]

I was talking to a not-for-profit prospect whose always-under-100 participant pension plan (effective in 1986) has consistently been audited and filed Schedules C & H. The Plan is turnkey (pure 3rd party administration) through a reputable life insurance company. I noted from the Schedule C the auditor was socking them close to $11K. The reason they say they undergo the audit is because they thought someday they might have 100 participants and thought it would simply be easier if the plan was always audited.

Yes, Beulah, this is hard to fathom.

My question is would it be considered an incomplete or untimely 5500 filing not to file the required schedules? I.e., is there jeopardy for filing the wrong forms even though this is all in good faith. The instructions to Schedule I indicate, "Schedule I (Form 5500) must be attached to a Form 5500 filed for pension benefit plans and welfare benefit plans that covered fewer than 100 participants as of the beginning of the plan year."

[Guest Sieve]

I think the answer to your question is No--more complete Schedules can be filed than required, so there ought to be no rejection by the DOL

The regs indicate that a small employer "may file the simplified annual report", but the regs do not require that it file in a simplified manner. (DOL Reg. Section 2520.104-41(b).) Likewise, the regs indicate that a small employer "is not required to comply" with the audit requirements. (DOL Reg. Section 2520-104-46(b)(1)(i).) Thus, not including an audit is an elective action, and the regs' implication is that such an employer can still file an audit, if it wants, even though it is not required to do so.

So, a small employer can file as if it's a big employer if it wants to.

This seems to be confirmed by the fact that the DOL has not asked, subsequent to the filing, for the simplified Schedule I in lieu of the Schedule H that it received. It makes sense (although that's certainly not the test!) that the DOL is willing to accept more complicated and complete reporting than is required--just like the IRS will accept a 1040 from someone who is eligible to file the 1040-EZ. Same theory.

[david rigby]

Hmmmm. I wonder if this sponsor will be looking for another auditor.

[JanetM]

Seems to me that is fiduciary breach to pay $11,000 of plan assets out on unneeded expense. If I were participant I would be upset at loss.

[Andy the Actuary]

Seems to me that is fiduciary breach to pay $11,000 of plan assets out on unneeded expense. If I were participant I would be upset at loss.

Thank you. More important -- and I haven't asked this yet -- would the sponsor (who depends upon charitable dollars) feel comfortable having this the headline of the Dailey Planet read, "XYZ Agency Spends $1,000s on Unnecessary Audits?"

[Kevin C]

I was thinking it might be a fiduciary breach, too. Although with this being in the DB forum, it is unlikely the participants are directly affected by it.

Andy, don't you mean a headline of "XYZ Agency Plan spent $$$ on an unnecessary audits"?