Title I of the Employee Retirement Income Security Act (ERISA) requires retirement plans, including ESOPs, be audited each year by an independent qualified public accountant (IQPA) as part of the plan’s annual report (Form 5500).
If certain conditions are satisfied, the audit requirement does not apply to a “small plan” filer. A small plan filer is a plan which covers fewer than 100 participants at the beginning of the plan year. In addition, if a plan that has been filing 5500 forms as a small plan filer and has its participant level rise above 99, but not above 120, it may continue to treat itself as a small plan filer.
As noted on the U.S. Department of Labor (DOL) Web site, there are three conditions that must be met in order for small plan filers to be exempt from the audit requirement:
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 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.
When a retirement plan needs an audit, the plan has a “large plan” filing status and a written opinion of an independent qualified public accountant, also known as the auditor’s report, must accompany the 5500 report when it is filed with the DOL.
Since the participant count to determine the filing status is based as of the beginning of the plan year, you should already be able to compute if your plan needs an audit. There are many things to consider when selecting an Employee Benefit Plan Auditor. If you need assistance locating an auditor that is well-versed in ESOP audits, please feel free to contact us for a referral.