News

MORE PLANS TO REQUIRE CPA AUDIT

For many years, plans with less than 100 participants have had an exemption to the requirement of an independent CPA audit of the plan.  Now, the Department of Labor has released final regulations meant to increase the security of small plan assets by requiring more plans be audited or have increased fidelity bond coverage.  The new rules are effective for plan years that begin after April 17, 2001. 

Relief from the mandatory audit depends upon compliance with new rules that emphasize a) who holds the plan's assets, b) expanded disclosure of plan investment details in the Summary Annual Report (SAR), and c) level of fidelity bond coverage. 

The new regulations use the term "qualifying plan assets".  It includes assets held by financial institutions, insurance companies, mutual funds, registered broker dealers and the like.  Examples of assets that are likely not "qualifying plan assets" are real estate, paintings, precious metals, jewels, coins or securities held in certificate form by the plan itself.    All plans must be audited unless at least 95% of the plan assets are "qualifying plan assets" or, the person handling the non-qualifying assets is covered by a fidelity bond.  The fidelity bond must be for at least as much as the value of the non-qualifying assets. 

The plan's SAR must include four new entries.  First, the name of each institution holding "qualifying plan assets" must be identified along with the amount of assets held at the end of the plan year.  Secondly, the SAR must disclose the name of insurance company issuing the fidelity bond if more than 5% of plan assets are not "qualifying plan assets".  Thirdly, participants and beneficiaries must be given notice that they may examine the fidelity bond and investment statements.  Finally, the SAR must give instructions on how to contact the regional office of the Department of Labor if they are unable to examine copies of the bond or investment statements. 

Most small plans should have little difficulty avoiding an audit requirement, since Section 412 of ERISA already requires fidelity bonding up to 10% of plan assets.  The one problem, however, is that the determination date for this exemption is the first day of the plan year.  Since most small plan administration is done well after the end of the plan year, it may be too late to avoid an audit by the time the facts become known.  For this reason, we advise immediately examining all plan assets to comply with the audit exemption. 

This new regulation is just one of many reasons why plan sponsors need competent retirement plan guidance.  First Actuarial Corporation is a full service firm, specializing in professional retirement planning.  You can find no better source for retirement plan design, installation and administration. 

Back