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Small Plan Audit Waiver

SITUATION: We sponsor a small retirement plan with fewer than 70 participants. We know that qualified small plans are allowed to elect to waive the annual audit requirement, but we’re not familiar with all the rules surrounding when an audit is required.

QUESTION: How do we determine if our small retirement plan’s books and records have to be audited for Form 5500 purposes?

ANSWER: The U.S. Department of Labor (DOL) generally requires qualified retirement plans to be audited annually by an independent certified public accountant. The DOL considers a plan with fewer than 100 participants at the beginning of the plan year to be a small plan that is eligible to waive the audit requirement when specific conditions are met.

DISCUSSION: Small retirement plans are eligible for the audit waiver if at least 95% of their assets are “qualifying plan assets.” Qualifying plan assets include:

  • Qualifying employer securities
  • Loans to plan participants
  • Assets held by a bank or similar financial institution, insurance company, registered broker-dealer, or any organization authorized to act as trustee for individual retirement accounts
  • Shares issued by a registered investment company
  • Investment and annuity contracts issued by a qualified insurance company
  • Assets in individual accounts over which the participant or beneficiary exercises control and receives an annual statement from a regulated financial institution describing the assets held or issued by the institution and their amount

If less than 95% are qualifying plan assets, any person handling nonqualifying plan assets must be bonded.

The plan’s summary annual report (SAR) must contain additional information, such as the name of each regulated financial institution holding or issuing qualifying plan assets and their amount as reported at the end of the plan year (except for certain qualifying assets). Additionally, the plan’s SAR must provide the name(s) of the surety company issuing the required bonding, if applicable.

The SAR also must include a notice indicating that participants and beneficiaries may, upon request and without charge, examine or receive copies of evidence of the required bond and any statements from the regulated financial institutions describing the plan assets.

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