FIS Relius
Small Plan Audit Waiver Update 1/20/2004
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Small retirement plans no longer are automatically exempt from the plan audit requirement. A small plan is exempt from the audit requirement if it satisfies the following three requirements:

  1. 95% or more of the plan’s assets are qualifying plan assets, or, if the nonqualifying plan assets exceed 5% of the plan’s assets, the plan purchases a bond that covers the nonqualifying plan assets.
  2. The plan satisfies certain summary annual report (SAR) disclosure requirements.
  3. Makes the financial institution statements and evidence of any additional bond (if required) available for review by the participants.

Since the cost of the bond is far less than the cost of an audit, an employer with a plan that includes more than 5% of its assets in nonqualifying plan assets will purchase the bond coverage rather than pay the cost of the audit.

The Department of Labor (DOL) recently has issued frequently asked questions (FAQs) on small pension plan audit waiver regulations. The FAQs provided clarifications and answers to the following questions:

  • Audit Requirements. Plans that do not qualify for the small plan audit nevertheless will file a Schedule I with its Form 5500. Furthermore, such a plan will not have to include a schedule of assets held for investment, a schedule of reportable transactions, the Schedule G or the Schedule C with its Form 5500.
  • Determination of Qualifying Plan Assets. The employer makes the determination of the percentage of qualifying plan assets held by the plan as of the last day of the preceding plan year. The employer must make the determination as soon as the information can be practically ascertained. The DOL indicates the date for this determination generally should be much sooner than the due date of the Form 5500 for the preceding plan year.
  • Type of Account. In order for an account held by a regulated financial institution to qualify as qualifying plan assets, the account must be a trust (including common/collective trust), custodial account, checking accounts and savings accounts. In addition, securities held in an omnibus account by a broker-dealer will qualify as a qualifying plan asset. However, plan assets held in a safety deposit box are not qualifying plan assets.
  • Individual Account Statements. Participant directed investments are qualifying plan assets but such assets do not need to satisfy the additional disclosure requirements on the summary annual report (SAR) if the regulated financial institution holding the assets furnishes an annual benefit statement describing the plan assets. However, a statement prepared by the plan administrator, even if based on data from the regulated financial institution, will not satisfy the condition. If the administrator issues the benefit statement rather than the financial institution, the assets are qualifying plan assets but the plan must disclose the investments on the SAR.
  • Receivables. Employer contribution and employee contribution (e.g., 401(k) elective deferrals) receivables do not satisfy any of the definitions of qualifying plan assets. However, the DOL does not treat the receivables as plan assets for purposes of the bonding requirements. Therefore, the DOL does not require the plan to acquire the enhanced bond for the receivables even if the receivables comprise more than 5% of the plan assets.


Form 5500 Workshop
SunGard Corbel will provide a complete explanation of the small plan audit requirements in this Workshop. In addition to the small plan audit waiver requirements, we will provide a line-by-line explanation of the Form 5500 and the Schedules. The Workshop also will provide answers to the tough-to-answer Form 5500 questions.

401(k) Plan Workshop
On the day following our Form 5500 Workshop, we will present the 401(k) Plan Workshop. The focus of this Workshop will be on providing answers and explanations to the hard-to-solve problems. The problems for which no one, including the IRS and DOL, provides answers. Nevertheless, these are problems for which you must be prepared to provide solutions. This is one seminar that you cannot afford to miss.