Is an independent audit required here?

[Guest Don J. Smith]

I have two sales companies that constitute a Control Group. Each company sells the same product but different brands than the other. Each company has its own Standardized Prototype 401(k) Plan Document that is a clone of the other. The one company has 85 employees, the other has 50 employees. Must the plans be audited?

[pjkoehler]

The plans you've described are clearly separate filing entities, i.e. this is not a multiple employer plan; but separate and distinct ERISA Title I plans, requiring separate 5500s with, presumably, different PINs. While Section 2, page 6 of the Instructions to the 1999 Form 5500 is not a model of clarity, I think you are on solid ground in determining each plan's participant count separately (for purposes of determining each plan's status as a "small plan" or a "large plan"). Furthermore, the participant-counting rules described on page 12 of the instructions regarding lines 6 and 7 make no reference to controlled group principles. Assuming that each plan contains language that excludes the employees of the other company, applying controlled group principles, simply because the 2 plans may be aggregated for various employee benefit requirements under the Code, would be a stretch. Since neither plan had 100 or more participants as of the beginning of the plan year, each plan would be subject to the "small plan" reporting regime.

[david rigby]

Note that you don't really care how many employees that sponsor has, just the number of plan particicpants.

[Bill Berke]

The implication in your facts is that these plans pass 410 and 401(a)(4)separately and properly tested on their own. If this is true, then you have two separate plans with their individual participant count controlling small or large plan status

[pjkoehler]

Please note: While these plans may be intended to satisfy Code Sec. 401(a) and, therefore, are subject to Code Sec 414(B), which requires aggregation of the employee groups for various qualification requirements under the Code, their qualified status is irrelevant to determining whether they are separate Form 5500 filing entities. The plans you've described and their related trusts, constitute separates funds or arrangements for purposes of the definition of "employee pension benefit plan" set forth in ERISA Sec. 3(2)(A) (i.e. the assets of each plan are only available to pay the benefits of the participants of that plan). They are also among the plans specified in Part 1 of Subchapter D of Chapter 1 of the Code and established and maintained by separate employers for purposes of Code Sec. 6058. The regs under Sec. 6058 make no reference to controlled group principles in defining the term "employer" for purposes of satisfying the "employer" annual return requirement. Reg. Sec. 301.6058-1(B). So even if these plans failed to satisfy any of the employee benefit requirements specified in Code Sec. 414(B), pertaining to plans maintained by members of a controlled group of corporations, they would still be separate Form 5500 filing entities. Therefore, the participant-counting rules would apply to each plan separately.

[Guest RBeck]

more of a basic question aside from the 5500 instructions - how does the standardized plan treat members of a controlled group? Isn't one of the requirements of a standardized plan the fact that all employees of all members of the controlled group must participate in the plan? And if that is the case, and the two plans are identical in all respects, isn't it possible that the plans could be construed as one plan, in which the controlled group members are participating? In that case, you won't be able to avoid the audit requirement. Might be time to get out of the standardized prototype and into a non-standardized plan.