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Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Audits of Multiple Employer Plans

(Posted May 31, 2005)

Question 277: I am interested in the audit aspect of a multiple employer plan. In my situation there are several small employer plans aggregated into a multiple employer plan. Individually none of the plans would meet the audit requirement; but as a multiple employer plan there are over 100 participants, so the plan files Schedule H to Form 5500. Small employers should weigh in the audit cost associated with the multiple employer plan in considering administrative costs.

Answer: Is there a question that goes with that answer?

You are correct that a multiple employer plan is a single 414(l) plan. As such, it files one 5500. When the plan answers question 6 (number of participants at the start of the year), that answer applies to the plan as a whole. That question and answer determines whether the plan is a large plan-- which must file Schedule H and have an audit-- or a small plan-- which can file Schedule I and generally avoid an audit.

A multiple employer plan always involves trade-offs. There is additional complexity and risk associated with a multiple employer design. Increased audit potential is part of that complexity. On the other hand there are savings from having a larger pool of money to invest, a single 5500 to file, and a single document to maintain. Each employer must weigh these factors as they apply to its particular situation.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.