Employee Benefit Plans – Frequently Asked Questions

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There are often many questions plan administrators have as their plan grows and expands. Compliance requirements mandated by the plan itself and outside agencies such as the Internal Revenue Service (IRS) and the Department of Labor (DOL) can make the situation seem more difficult. The good news for plan administrators facing growing pains is there are resources available to help answer questions, address concerns and provide the guidance needed. To help clients, prospects and others to better understand their employee benefit plans, JLK Rosenberger has compiled a list of frequently asked questions below.

When is a Benefit Plan Audit Required?

Qualifying benefit plans, including 401ks, 403b, amongst others, are required to file an independent auditors report that must be certified by an independent Certified Public Accountant (CPA). The certification along with corresponding information will be included in various schedules in the Form 5500 filing. The report must include an opinion by the CPA that the financials have been presented fairly in accordance with specified accounting standards.

What is the 80/120 rule?

This rule states that if the number of participants reported on Form 5500 is between 80 and 120 at the beginning of the plan year, the plan may elect to complete the current year’s Form 5500 in the same category as was filed in the prior year. This rule makes it possible for plans with between 100 and 120 total participants to “opt out” of a plan audit. Check out our recent blog post, The Impact of the 80/120 Rule on the Plan Audit Requirement, to get more information about how it may impact your company.

What is a Limited Scope Audit?

A limited scope audit is a type of audit that allows the plan administrator the option of not having certain investment information tested during the audit. Under this audit type, the auditor must receive certification from the custodian or trustee that all investment information is complete and accurate. It’s important to note that limited scope audits still need to assess other critical plan areas such as participant data, plan contributions, loans and distributions. Typically, limited scope audits are less costly than full scope audits.

What is a Full Scope Audit?

A full scope audit is a type of plan audit that is like a limited scope audit but requires the auditor to perform procedures on investment data such as year-end balance and investment income. When certification from the custodian or trustee is not available, these procedures need to be performed. All other aspects of the benefit plan audit such as participant data, contributions, loan and distributions are also tested. Due to the increased amount of work required, full scope audits are usually more costly.

What is the Filing Deadline for IRS Form 5500?

It depends on the plan’s year-end date. Regulations state the filing deadline for the Form 5500 is the last day of the seventh month following a plan’s year-end. For example, if the plan year-end is December 31st, the Form 5500 must be filed no later than July 31st of the following year. If the plan year-end is June 30th, the Form 5500 must be filed no later than January 31st of the following year.

Are There Penalties for Late Filings?

For companies facing first-time audit requirements, there is often concern about penalties for late filings. Sometimes employers don’t realize the filing was missed and discover it several months after the due date. Since both the IRS and the DOL oversee benefit plans, there are penalties which can be imposed by both agencies. The IRS has a $25 per day late fee with a maximum of $15,000. The DOL can impose fines of up to $1,100 per day with no maximum. The good news is if a company has not been notified about missing a filing, they can use the DOLs’ Delinquent Filer Voluntary Compliance Program to come into compliance with reduced penalties. If you are working with an auditor on the plan audit, they will provide the needed guidance to ensure filing deadlines are met.

Contact Us

Managing an employee benefit plan can be a challenging task. There are many issues and duties to be addressed throughout the year, and if an audit is required, the workload can double. Partnering with a seasoned plan auditor can help you through the process while avoiding common pitfalls. If you have questions about administering your benefit plan or need assistance with the plan audit, JLK Rosenberger can help. For additional information call us at 949-860-9902, or click here to contact us. We look forward to speaking with you soon.

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