Small Plan or Big Plan?

[mming]

The participant count for a calendar-year plan as of 12/31/06 was 86. On 1/1/07 and 12/31/07 the counts jumped to 105 and 121, respectively, the first time the plan ever had a count of over 100. The plan was considered a small plan due to the BOY nature of the 80-120 rule for 2007.

The participant count as of 1/1/08 remained slightly over 120 but dropped to 71 by 12/31/08 and probably will never go over 100 again.

The sudden and significant increase and decrease in the participant count was due to the fact that the employer has high turnover and it seems the TPA failed to process distributions for about a year or so, and then the new TPA cleaned everything up in 2008.

I could not find anything that would justify allowing the plan to file as a small plan for 2008 and I would like to be sure before I tell the client they have to get an audit for the plan just because the payables piled up due to the TPA's neglect - I'm sure many of you know that the audits are not cheap. Is the employer forced to file as a large plan and get an audit just for this one year? All help is greatly appreciated.

[SheilaD]

Sorry -- I don't see any way to avoid the audit.

[Lou S.]

If you are over 120 you are probably out of luck.

A couple ideas is if you are within a few participanst of 120 that may or may not work.

1. Look for ditributions that were satrted in December of 07 but completing in January of 08. Consider filing an amended return for 2007 with those as payables and deem them paid out in December. Not the best idea and no sure it would fly by the IRS but it might work.

2. Look for 0% vested that weren't forfieted to make sure weren't accidently included in the 1/1/08 count.

Barring that recomend an inexpensive auditor to the client.