Audit requirement for certain plans

[Guest Mike Melnick]

The instructions to the 5500 say that no audit needs to be attached if the plan assets are invested in a CCT (common/collective trust) a PSA (pooled separate account) or a MTIA (master trust investment account). (Instructions for Schedule H, page 41). But I have heard differing opinions as to whether the plans are actually exempt from the audit requirement. The law itself is less clear. Does anyone know of a citation which would exempt such plans from the audit requirement?

[pjkoehler]

Rather than an exemption that is specific to the plan, the exemption is technically a limitation of the scope of the accountant's examination and report required by ERISA Sec. 103(a)(3)(A). See Reg. Sec. 2520.103-8. The so-called "limited scope audit exception" effectively exempts from the accountant's examination consideration of the accuracy of any statement or information prepared and certified to by organizations that are eligible for treatment as "direct filing entities" (MTIAs, CCTs, PSAs and 103-12 Investment Entities). Now, if it turns out, that 100% of plan assets are held in such investments, a plan is effectively exempt from the the auditor's report requirement, if the DFE files a DFE Form 5500 and the plan sponsor attaches Schedule D to the Form 5500.

[Guest LisaPA]

Can this be true? I have just begun to look at the rules for DFE's and PSA's (not having had any clients invested in PSA's for several years), but the limited scope exception described above does not exempt a plan from filing an an audit report along with the 5500. It only says that the DOL will accept an opinion that is a limited scope opinion in accordance with DOL reg 29 CR 2520.103-8. The auditor would not perform work on the assets held by an insurance company, or bank for example if the auditor obtains a certification that those assets are complete and accurate. Other audit work on contributions , benefit payments, eligibility, etc. would still be performed.

But my real question is whether a Plan would be completely exempt from filing if their assets were held in a PSA and the insurance company was a Direct Filing Entity.

[JohnCheek]

Was this thread really started two years ago?

1. The DFE itself is not required to attach an audit opinion, but a plan that invests in a DFE is not exempted.

2. Limited scope exception is not a broad as you described. It means that the audit (which is still required) can exclude certain financial data from its scope. The excludible data is: investment data that is certified as complete AND accurate, by a bank, insurance company, or similar entity, which holds the investments, is regulated, etc. Some banks will pay benefits, etc, and they include that information in the data they certify, but the limited scope exception does not allow the audit to exclude anything but investment information. In addition, there are other areas of the audit, such as tests of participant data, plan expenses, etc., which are still required.

3. Another exception to audit, is when plan is unfunded or fully insured... but any plan invested in a DFE is not unfunded.

[BFree]

John,

Tell us more about exception 3 - fully insured. Are there dc plans that are fully insured? If so, please describe.

[JohnCheek]

I have not worked with any pension plans that were fully insured; most pension plans-- db or dc-- include a trust, and therefore are subject to the audit requirement- unless some other rule allows them an exception.

Most fully insured plans are welfare plans.

It is possible, however, to provide pension benefits exclusively through the purchase of annuity contracts. The instructions to the 5500 describe this under "Limited Pension Plan Reporting" (around page 7), and refer to 29 CFR 2520.104-11(B)(2).