Audit Requirement

[Dougsbpc]

Have a 1 participant plan with $6 M of private investments. For the first time the one employee will be eligible for the plan. However, it is a profit sharing plan and no contributions are intended.

We are thinking about changing it to a 401(k) plan. Suppose the 1 eligible employee never makes salary deferrals and never receives a profit sharing contribution. Would the small plan audit be required if the employee never has an account balance?

An audit would probably run $4k to $5k. We are thinking the bond premium would also be about $4k to $5k.

[Mike Preston]

Cheaper to set up a second PSP. But if no contributions are "intended" the plan will crush itself into disqualified, anyway. Tell plan sponsor that a 3% of pay contribution every third year to protect 6M in qualified money is inexpensive.

[BG5150]

Plus, you will need a fidelity bond for the total amount of the assets if they are now qualified assets...

[Dougsbpc]

Mike

The separate plan is good idea. The 3% would not be a problem.

I think we can aggregate for 410b.

BG5150 - why would a 100% bond be required if one plan covers only the owner and has all the private investments and the other plan covers only the employees?

[BG5150]

Since it is no longer a 1-participant plan, a bond would be reqiured for the non-qualified assets to avoid an audit.

Unless there are 2 plans. I was going with the 1-plan idea.

[Scuba 401]

I have a case with an owner and his daughters who would be considered key. would the plan have to get the bond if it only covers the owner and his daughters?