80-120 rule question

[bzorc]

Fact situation:

Plan at 4/30/98 has 92 employees at the end of the year.

At 4/30/99 the count goes to 109 (i.e., 17 new entrants at 5/1/98, as this is an MP plan)

at 4/30/00 the count goes to 118 (i.e., 9 new entrants at 5/1/99)

Question: Does the 80-120 rule allow me to get out of the audit requirements for the 4/30/00 plan year? Reading previous threads indicates that you can, but I want to be doubly sure. Thanks for any advice.

[Guest Emiliano]

Yes, provided that you have filed Form 5500 in the prior year under the small plan filing requirements?

[Guest]

and if they have terminees who you can pay out before plan year end, do them a favor and pay them and try to keep your number under 120 until you are absolutely forced to go above 120!

[Guest SBlack]

bzorc -

FYI - You might also want to check out the Final Rule - Small Pension Plan Security Amendments [10/19/2000]. There are some additional criteria to meet in order to continue to be exempt from the audit requirement. Basically, it should be pretty easy to satisfy the new requirements (most small plans probably already are in compliance), unless you've got some "sexy assets" (race cars, fur coats) in the plan. Check it out http://www.dol.gov/dol/pwba/public/regs/fe.../2000026880.htm

[BeckyMiller]

I debated with myself about raising this point and the rigid technical side of me won.

Realize that in counting the number of participants, the regulation granting the audit exemption applies to "plans which cover fewer than 100 participants at the beginning of the plan year." (ERISA 2520.14-45(B)) This is not the same as the end of the prior plan year. As bzorc notes, the number increases by new entrants. At least some new entrants come in on the first day of the plan year.

Now - having said this I must admit that I have never had a DOL agent reject a filing prepared on Form 5500 C/R for this reason. I don't know if they look at it this way or not. Obviously, I would never raise the issue in an audit situation.

This is not just my personal perspective. If you look at the AICPA's self-study course on ERISA, it includes a form for calculating the number of participants which starts by adding new entrants. That course was originally drafted by David Walker, former DOL Assistant Secretary for the PWBA.

[Richard Anderson]

Where can I get the AICPA self-study course on ERISA?

[John A]

Becky,

Just to clarify:

Are you implying that the 80-120 rule cannot be used in determining the audit requirement?

Or are you just pointing out that the 80-120 rule must be based on beginning of plan year participant counts?

[BeckyMiller]

I don't mean to say that the 80-120 rule may not be available in these facts. I am just clarifying that the literal language of the rule could put you outside if the new entrants on 5/1/2000 put you over 120.

For AICPA courses that you may find interesting go to the AICPA web page and select CPE. There are three self-study courses that are helpful. One is a tax course, number 732230. There are 2 audit courses, 737101 and 737102. The first audit course does a good job covering the basic ERISA reporting rules. The second course is really just for plan auditors.

The AICPA web page is pretty easy to find. It is just http://www.aicpa.org.

Becky

[Kristina]

The 80-120 rule is also based on the number of participants as of the beginning of the plan year. Therefore it is based on the number you show on line 6 of the 5500. Which is not supposed to be the same number you have on the prior year's 5500 for the end of the year participants as new participants often enter on the first day of the plan year. If you still qualify to file as a small plan, you may rely on the audit waiver in the new final regulations, which by the way are effective for the plan year beginning after 4/17/2001. This means that you will not have to worry about the new small plan audit rules until you file the 5500 series for 2001 in 2002 sometime.

[Guest Michael J]

I need additional help in resolving the interpretation of the 80/120 rule.

Does a plan have a choice to file as a small plan every year as long as it is 100 - 120 participants at the beginning of the year, even if the 5500 was filed as a large plan the previous year?

I have a client that believes this to be true. I understand the rule as stating once you file as a large plan, that there is no turning back. Is there a scenario that has a plan filing as a small plan, then large plan back to small plan?

How long has the 80/120 rule been in existence?

[Kristina]

The 80/120 rule only applies for the transition from a small plan filer to a large plan files or from a large plan filer to a small plan filer.

In other words, it is only referenced if you have a small plan that has increased participants at the beginning of the plan year to, say, 110 participants from 90 participants at the beginning of the prior year. This plan has the option to continue filing as a small plan, or to file as a large plan.

If you have a plan that has 135 participants at the beginning of the previous plan year and filed as a large plan, and this year only has 110 participants at the BOY, it must still file as a large plan. The plan had over 100 lives and still has over 100 lives and, more importantly, it filed a Sch H in the prior year.

A plan that has filed as a large plan may only change to the small plan status if the number of participants at the beginning of the plan year falls to under 100 lives.

100 Lives is still the dividing line between a large plan and a small plan. There is just wiggle room for small plans that go above 100 lives and for large plans that go below 100 lives.

[BeckyMiller]

The 80-120 rule was added to the regulations in 1980. (Sheesh - it seems like only yesterday....)

It refers to an election, but not an irrevocable election. I am aware of at least one instance where an employer filed the form for a large plan when they passed through 100 participants because they were unfamiliar with this rule. They later amended that filing to file as a small plan and to take advantage of this rule for the entire period until they exceeded 120. Such amended filing was not rejected.

BUT, if the plan was required to file the form for a large plan, because they were over 120 in the prior year or because they were over 100 in their first year, they do not come under this rule. They would have to fall below 100 to get the privilege of the small plan filing status.