Last week Richard Stolz in his article, Red Alert for Fiduciaries on Plan Financial Reports properly noted that plan fiduciaries are more vulnerable than ever on a number of compliance matters, including the financial statements included with their 5500 filings.

He was, of course, talking about the basic audit requirement that Plan Administrators of “large” employee benefit plans (100 or more participants) plans that file Form 5500 are required to attach an opinion by an independent qualified public accountant.

So that means a “small plan” (less than 100 participants) is exempt from the audit requirement, right? Not always and here’s a situation in which the yellow caution light should go on so that a small plan doesn’t lose the audit waiver.

The Department of Labor requires that 95% of a small pension plan’s assets must be “qualifying plan assets” which includes:

  • Any asset held by certain regulated financial institutions;
  • 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; or
  • Qualifying employer securities, as defined in ERISA section 407(d)(5); and
  • Participant loans meeting the requirements of ERISA section 408(b)(1)

If less than 95% are qualifying plan assets, the audit waiver can be taken only if the person who handles assets of the plan is bonded in an amount that at least equal to the value of the “non-qualifying plan assets”. In addition, the DOL also requires certain notice and disclosure information be provided to plan participants.
In other words, Plan Administrators of small plans shouldn’t assume that there is a green light to file the 5500 without a plan audit.

Jerry Kalish is President of National Benefit Services, Inc., a Chicago-based third party administrator. He also publishes the firm’s blog, The Retirement Plan Blog. He can be reached at


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