Initial Plan Audit

[Guest msnow]

Can someone clarify the requirement for a plan audit? 401(k) plan started 9/1/2010 with immediate eligibility and no wait. There were 400+ eligible employees in 2010, but only 70 that had an account balance at the end of the year. Are they required to have their plan audited in 2011? Same deal for YE 12/31/11. 400+ eligibles & even less with an account balance (62). Thanks

[chc93]

It is our understanding that your 401k plan will need an audit. Form 5500 Line 5 instructions below define a "participant" for this purpose as someone who is *eligible* to elect salary deferrals.

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For pension benefit plans, “participant” for this line means

any individual who is included in one of the categories below:

1. Active participants (i.e., any individuals who are currently

in employment covered by the plan and who are earning or

retaining credited service under the plan). This includes any

individuals who are eligible to elect to have the employer make

payments under a Code section 401(k) qualified cash or

deferred arrangement. Active participants also include any

nonvested individuals who are earning or retaining credited

service under the plan. This does not include (a) nonvested

former employees who have incurred the break in service

period specified in the plan or (b) former employees who have

received a “cash-out” distribution or deemed distribution of

their entire nonforfeitable accrued benefit.

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[cpc0506]

Can someone clarify the requirement for a plan audit? 401(k) plan started 9/1/2010 with immediate eligibility and no wait. There were 400+ eligible employees in 2010, but only 70 that had an account balance at the end of the year. Are they required to have their plan audited in 2011? Same deal for YE 12/31/11. 400+ eligibles & even less with an account balance (62). Thanks

If the plan was a calendar year plan, there would not have been an audit required since the first plan year was less than 7 months. The plan for 2011 will need an audit.

[rcline46]

The plan does need and audit for 2010. However, since thep lan year was less than 7 months, it may be combined with the 2011 audit.