What is the Small Pension Plan Audit Waiver Regulation?

The Department of Labor’s regulation at 29 CFR 2520.104-46 establishes conditions for small employee benefit plans (generally those with fewer than 100 participants) to be exempt from the general requirement under Title I of the Employee Retirement Income Security Act (ERISA) that plans be audited each year by an independent qualified public accountant (IQPA) as part of the plan’s annual report (Form 5500).

What pension plans are eligible for an audit waiver under the Small Pension Plan Security Amendments?

Pension plans with fewer than 100 participants at the beginning of the plan year are eligible if they meet the conditions for an audit waiver under 29 CFR 2520.104-46.

Can a plan that utilizes the “80 to 120 Participant Rule” to file as a small plan claim the audit waiver?

Yes. All Schedule I filers that meet the conditions of the audit waiver are eligible. If the plan meets the conditions of the “80 to 120 Participant Rule,” it may file as a small plan and attach Schedule I instead of Schedule H to its Form 5500. Under the 80 to 120 Participant Rule, if the number of participants covered under the plan as of the beginning of the plan year is between 80 and 120, and a small plan annual report was filed for the prior year, the plan administrator may elect to continue to file as a small plan.

What information must be included in the summary annual report for the plan to be eligible for the audit waiver?

The plan administrator must include the following additional information in the Summary Annual Report (SAR) furnished to participants and beneficiaries to be eligible for the small pension plan audit waiver:

Except as noted in the following question below, the name of each regulated financial institution holding or issuing “qualifying plan assets” and the amount of such assets reported by the institution as of the end of the plan year;

The name(s) of the surety company issuing enhanced fidelity bonding, if the plan has more than five percent of its assets in “non-qualifying plan assets;”

A notice indicating that participants and beneficiaries may, upon request and without charge, examine or receive from the plan copies of evidence of the required bond and copies of statements from the regulated financial institutions describing the “qualifying plan assets;” and

A disclosure stating that participants and beneficiaries should contact the Department of Labor’s Employee Benefits Security Administration (EBSA) Regional Office if they are unable to examine or obtain copies of the regulated financial institution statements or evidence of the required bond.

Do the enhanced Summary Annual Report (SAR) disclosure requirements apply to all “qualifying plan assets?”

No. The enhanced SAR disclosure is not required for the following qualifying plan assets:

Qualifying employer securities as defined in section 407(d)(5) of ERISA and the regulations issued thereunder;

Participant loans meeting ERISA section 408(b)(1) and the regulations issued thereunder; and,

In the case of an individual account plan, any assets in the individual account of a participant or beneficiary over which the participant or beneficiary has the opportunity to exercise control provided the participant or beneficiary is furnished, at least annually, a statement from an eligible regulated financial institution describing the assets held or issued by the institution and the amount of such assets.

 What are the requirements for the audit waiver?

In addition to being a small pension plan filing the Schedule I, there are three basic requirements for a small pension plan to be eligible for the audit waiver:

  • First, as of the last day of the preceding plan year at least 95% of a small pension plan’s assets must be “qualifying plan assets” or, if less than 95% are qualifying plan assets, then any person who handles assets of a plan that do not constitute “qualifying plan assets” must be bonded in an amount that at least equal to the value of the “non-qualifying plan assets” he or she handles.

  • Second, the plan must include certain information (described below) in the Summary Annual Report (SAR) furnished to participants and beneficiaries in addition to the information ordinarily required.

  • Third, in response to a request from any participant or beneficiary, the plan administrator must furnish without charge copies of statements the plan receives from the regulated financial institutions holding or issuing the plan’s “qualifying plan assets” and evidence of any required fidelity bond.

What are qualifying plan assets?

“Qualifying plan assets” are:

       Any asset held by certain regulated financial institutions (see the next question);

Shares issued by an investment company registered under the Investment Company Act of 1940 (e.g.  mutual fund shares);

Investment and annuity contracts issued by any insurance company qualified to do business under the laws of a state;

In the case of an individual account plan, any assets in the individual account of a participant or beneficiary over which the participant or beneficiary has the opportunity to exercise control and with respect to which the participant or beneficiary is furnished, at least annually, a statement from a regulated financial institution describing the plan assets held or issued by the institution and the amount of such assets;

       Qualifying employer securities, as defined in ERISA section 407(d)(5); and

Participant loans meeting the requirements of ERISA section 408(b)(1), whether or not they have been deemed distributed.

Which financial institutions are “regulated financial institutions” for purposes of the audit waiver conditions?

Only the following institutions are “regulated financial institutions” for purposes of the audit waiver conditions:

Banks or similar financial institutions, including trust companies, savings and loan associations, domestic building and loan associations, and credit unions.

       Insurance companies qualified to do business under the laws of a state;

Organizations registered as broker-dealers under the Securities Exchange Act of 1934;

       Investment companies registered under the Investment Company Act of 1940; or

Any other organization authorized to act as a trustee for individual retirement accounts under Internal Revenue Code section 408.

 The above information includes excerpts from the United States Department of Labor, Employee Benefits Security Administration, Frequently Asked Questions.

 See additional articles:

Do you need a 401k audit? 

What is the 80/120 Rule?