Large Plan Participant Count, 80-120 rule

[K-t-F]

If I have a new plan.. for 2007 they filed a schedule I. For 2008 they break the threshhold of 100 participants makeing them eligible to file Schedule H. But reading about how to count participants and the IQPA audit requirement I came across this rule.. the 80-120 rule exception. It states:

Exceptions to the Audit Requirement

80 to 120 Participant Rule

If the number of participants reported in Part II, line 6, of Form 5500 is between 80 and 120 and a Form 5500 was filed in the prior year, the filer may elect to complete the current year’s Form 5500 in the same category (large or small Plan) as was filed in the previous year. For example, if the number of participants at the beginning of the Plan year is 110, and a Form 5500 was filed in the previous year as a small Plan (Schedule I was filed instead of Schedule H), the filer may elect to continue to file Schedule I and forego the audit requirement. However, if the participant count is 121, then regardless of what category of Plan was filed in the previous year, the current year’s form 5500 must include Schedule H and the Plan must be audited.

Since the audit requirement is solely dependent on the number of participants, an accurate participant count is critical. A Plan sponsor has the option of distributing participant account balances for inactive participants providing their vested account balance is $5,000 or less. Accordingly, if your participant count is such that you may be required to have the Plan audited, you may consider distributing inactive account balances under $5,000 to the participants prior to the end of the Plan year.

Does this work?

Can I file a schedule I continuously as long as I dont exceed the 120 participant number each year?

[Jim Chad]

Yes and the big prize is no audit

[K-t-F]

So as long as I fluctuate between 80 and 120 participants.... dont exceed 120 then I am good to go with only filihg a schedule I... right? There is not catch like I have to drop down below 100 participants every 3 years of so... just dont exceed 120. AND, I can exceed 100 but less than 120 for many years in a row... Right?

Sorry, want to simply have it spelled out.

Thanks

[WDIK]

R..i..g..h..t.

[K-t-F]

EXCELLENT!! Thanks! Great news ... eluding a very expensive task... so I am told.

[GMK]

No one argues that an audit is a major expense, especially for a small plan.

The decision, however, not to have a plan audited should not be made on the basis of cost alone.

If the plan is simple, and thorough annual reviews of the plan's activities and records indicate to the plan administrator's satisfaction that all is being done properly, then an audit may be superfluous. On the other hand, if the plan is of an individual design or otherwise complex, an audit may be beneficial, even if you aren't required to send it in with the 5500.

Audits help ensure that the plan is reviewed to a reasonable level of detail and may catch mistakes early enough for a simple correction. Audits may identify where procedures are deficient or redundant, how procedures and record keeping can be streamlined, and what new rules are in effect or on their way.

And an audit provides a level of assurance that the plan is OK, both as a part of due diligence and in the event that compliance review auditors show up.

So, just as a reminder: The current expense of an audit is an important factor, but not the only one to consider in deciding whether or not to have a plan audited.

[No, I am not an auditor, I have no affiliation with any auditor group, and no auditor previewed this post.]

Edit: typo

[BG5150]

Keep in mind, it is not 120 participants at any one moment.

It is the number of active participants on the first day of the plan year, including terminated people who retain balances (but not beneficiary or QDRO accounts). Don't fall into the trap that the # on the last day = the # on the first day next year.