[*Thanks* to Sal Tripodi of TRI Pension
Services, for permission to reprint and edit the
following article, which appears on his site
today at http://cyberisa.com. TRI Pension
Services, started in 1994, is committed to
providing consulting, professional training, and
reference material in ERISA-related subjects.]
Current DOL regs exempt "small" pension plans from
the annual audit requirement that applies to larger
plans (i.e., engaging an independent qualified
public accountant to examine the financial
statements of the plan and to issue a report to be
attached to the Form 5500). A "small" plan is one
that has fewer than 100 participants at the
beginning of the plan year (or has between 100 and
120 participants and elects to be treated as a
small plan).
Proposed regulations issued today would require
small pension plans (e.g., profit sharing plans,
401(k) plans, money purchase plans, or defined
benefit plans) to meet certain conditions in order
to be exempt from the annual audit requirement.
Small pension plans that cannot meet these
conditions would have to engage an accountant to
audit the plan each year and attach the
accountant's report to the plan's Form 5500.
The regulations are proposed to become effective 60
days after they have been finalized, and would
pertain to plan years that begin after the
effective date.
Small welfare benefit plans would not be subject to
these new rules, and would continue to be exempt
from the audit requirement without any of the new
conditions.
To be exempt from the audit requirement, a small
pension plan would have to:
(1) have at least 95% of its assets invested in
"qualifying" plan assets, or
(2) obtain a bond for any person who handles
assets that do not constitute qualifying plan
assets, in an amount that is not less than the
value of such assets.
Qualifying plan assets are:
- qualifying employer securities,
- participant loans which meet the prohibited
transaction exemption requirements,
- assets held by a bank or similar financial
institution, as defined in DOL regs,
- assets held by an insurance company,
- assets held by a registered broker-dealer, or
- assets held by an organization that is
authorized to act as a trustee of IRAs.
In addition to meeting one of the two requirements
described above, the summary annual report would
have to include:
(1) information about the name of each
institution holding qualifying plan assets and the
amount of such assets held by such institution as
of the end of the plan year,
(2) if applicable, information about the surety
company issuing the bond described above,
(3) a notice that the participants and
beneficiaries may request a copy without charge of
any such bond and statements received from each
institution holding qualifying plan assets that
describe the assets held by the institution as of
the end of the plan year, and
(4) a notice that the participants and
beneficiaries should contact the DOL's Pension and
Welfare Benefits Administration if they are unable
to examine or obtain copies of these items.
The DOL believes this regulation would increase the
security of assets in small plans, by conditioning
the waiver of the audit requirement on enhanced
disclosure of information to participants and
beneficiaries, and, if the plan invests more than
5% of its assets in nonqualifying plan assets, by
strengthening the bonding requirement.
Written comments on the proposed regulation must be
received by the DOL by January 30 of next year.
A reprint of the full text of the proposed
regulation appears online at
http://www.benefitslink.com/erisaregs/audit
[This message has been edited by Dave Baker (edited 12-01-1999).]