Does my pension plan need an ERISA audit?
Different rules apply depending on whether your plan is classified as a “small” plan or a “large” plan. A small plan must file Schedule I with its Form 5500 Annual Report, and no audit report is required. A large plan must file Schedule H with its Form 5500 Annual Report. Schedule H requires disclosure of information on the auditor and the attachment of an auditor’s report; in other words, it requires an audit to be performed.
The general rule is that existing plans with more than 100 participants at the beginning of the plan year are “large” plans, which require an audit.
If a plan is new and there was no previous Form 5500 filing, the plan must file as a large plan if it has over 100 participants at the beginning of the year…of course an audit would be required.
Far less popular in application…if a plan was treated as a large plan in the prior year (filed Schedule H with the Form 5500) and the number of participants in the plan has dropped below 100, the plan administrator may elect to continue filing as a large plan. However…most plan administrators will choose to file as a small plan when they can so as to reduce costs!
Who is a participant for purposes of a retirement plan?
When counting participants in a pension plan, you must count all employees who are eligible to participate, whether or not they actually choose to do so. You must also count all separated participants with account balances. The number of participants is counted on the first day of the plan year, not on the last day of the previous plan year. These numbers can be different if the first day of the plan year is an entry date, as it often is.
What is a limited scope audit?
A limited scope audit allows a plan to have an audit where the auditor may rely on the certification of an institutional asset trustee or custodian to limit the scope of testing on any investment information. It is of primary importance to understand that the limited scope exception does not apply to any other audit areas, only to investments. Therefore, you should expect that your auditors will still conduct procedures in all other audit areas (for example, participant data, contributions, distributions, etc.)
Which plans qualify to have a limited scope audit?
If all or a part of a Plan’s assets are held by a bank, insurance company or regulated trust company, the Plan may qualify to have a limited scope audit. The asset custodian or trustee must be subject to regulation by a state or federal agency and able to provide to the Plan sponsor the certification required under Department of Labor regulations 2520.103-8.
What if my plan has some assets with a custodian that can provide a certification, and some assets elsewhere?
The auditor may perform limited scope audit procedures with regard to the assets held at the certifying institution, and must perform full scope audit procedures for the other assets.
