Does a TPA know that a plan’s assets don’t qualify for the audit waiver?

[Peter Gulia]

29 C.F.R. § 2520.104-46 provides its excuse from an audit of a plan’s financial statements only if, among other conditions, at least 95% of the plan’s assets are qualifying plan assets—much of which involves regulated banking, insurance, and securities businesses.

 

Imagine a small-business retirement plan with 100% of its assets in non-qualifying assets.  An officer of the plan’s sponsor serves as the plan’s trustee.

 

If a TPA goes about its work normally, how likely or unlikely is it that a TPA would see information from which the TPA would know that the assets don’t qualify for a § 2520.104-46 waiver?

 

[ESOP Guy]

It has been about 10 years since I last worked this kind of very small 401(k) plan with these assets but I think we always knew.

We didn't just take the client's word about the assets and values.  We asked for bank statements.  We had a client once that had a diamond ring as an "investment" in the plan.  We were able to detect its purchase by seeing cash leave the bank statement.  We asked the client to get appraisals for the ring every year. 

To not know a TPA would have to just be getting some kind of vague already prepared financial statements from the client.  I have never worked for a TPA that would use just that. 

[Belgarath]

Agree. We always know - if it isn't obvious from the statements, then we inquire further until it is nailed down.

[Peter Gulia]

Thank you, ESOP Guy and Belgarath.

Anyone with a different outlook?

[RatherBeGolfing]

The TPA should know.  If it doesnt, or does not at least know what looks questionable, it's a problem.

I come from a small TPA,  now ERISA department at a larger tax and consulting firm, and it's the same, we always know.

[Bri]

I gotta agree.  Clients don't typically self-report a single number for the asset value, but will give us asset statements for 12/31.  My one plan with gold kugerands gives me a unit value as well as the total value.