Is an audit required?

[emmetttrudy]

New DB Plan as of 1/1/2008. Participant count is 114. So with my understanding of the 80/120 rule they do NOT need an audit and can file a Sch. I instead of a Sch. H. However, they do have a 401(k) Plan which is subject to an audit (over 120 participants). Is there a rule that says if one employer's Plan is subject to audit then all of the Employer's plans are subject to audit as well? And if so, can you reference a code section? Thanks!

[PensionPro]

My understanding is the 80/120 exception is available if "a Form 5500 was filed for the prior plan year." This is from the 5500 instructions.

[emmetttrudy]

My understanding is the 80/120 exception is available if "a Form 5500 was filed for the prior plan year." This is from the 5500 instructions.

I read that as well but I'm thinking there has to be another exception to that for initial Plan Years. ..

[Guest dbvail]

My inderstanding is that the 80/120 is a transition rule. If you start at 114 then the audit is required.

[Guest Sieve]

The filing and audit requirements are determined on a plan-by-plan basis. One plan of an employer could require an audit, for example, while another plan of the same employer could be a small plan.

The 80-120 reg. does not really relate specifically to exemption from the audit. Rather, it says that a plan which "has between 80 and 100 participants . . . as of the beginning of the plan year . . . may elect to file the same category of annual report (i.e., the annual report for plans with 100 or more participants . . . or the annual report for plans with fewer than 100 participants . . .) that was filed for the previous plan year." (DOL Reg. Section 2520.103b-1(d). Emphasis added.) Therefore, if there is no prior year filing, then the 80-120 participant rule does not apply (as noted in the Form 5500 Instructions). There is no exception to this rule for an initial plan year.

[Guest TimS]

Sieve,

I found your statement that "one plan of an employer could require an audit, for example, while another plan of the same employer could be a small plan" interesting.

Is it possible for an employer to split a single plan into two smaller plans to alleviate the audit requirement? For instance, splitting current plan of 150 participants into two 75 participant plans (based on perhaps divisons, locations, etc....). If it is possible....is it common?

Thanks.

[Guest Sieve]

Yes, it is possible. I have no idea if it is common--but, I do know that controlled group members often establish separate plans simply to avoid an audit.

[chc93]

Yes, it is possible. I have no idea if it is common--but, I do know that controlled group members often establish separate plans simply to avoid an audit.

We have a company that does exactly that. It started as 3 401(k) profit sharing plans, each plan with less than 100 participants. Recently, they added more employees/participants, so they actually split the 3 plans to 4 plans, each with less than 100 participants. All 4 plan documents are mirrors of each other. We file 4 Form 5500's. We have been aggregating all 4 plans for coverage and discrimination tests. The company sees this as better than a plan audit.

[david rigby]

... controlled group members often establish separate plans simply to avoid an audit

Yep, and it happens even without controlled group issues: perhaps identical plans for location A and location B.