(b)lines Ask the Experts – Frozen Plan Now Small Plan for Audit Purposes

May 17, 2011 (PLANSPONSOR (b)lines) – “We have a 403b ERISA plan that filed a 5500 with an audit in 2009.  On 09/01/09 we froze the plan.  As of 01/01/10 we have 99 former and current employees with balances in the frozen plan.

“As I understand the rules, a plan with less than 100 participants may file as a small plan with no audit.  As no one has been able to contribute to the frozen plan since 09/01/09, there are no eligibles other than those who have balances.  May we file a plan without an audit for the 2010 plan year?”   

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:    

Assuming your participant count is accurate, not only are you not required to obtain an audit opinion, but your plan will enjoy many other administrative benefits associated with what the DoL/EBSA terms a “small” plan.   

The key element here is that, in order to qualify as a “small” plan, the plan must have LESS than 100 participants at the beginning of the plan year for which the filing applies, Since your plan has 99 participants as of 1/1/10, assuming you filing year is calendar, you would complete a small plan filing for 2010 without an audit. However, you should confirm that the number of participants that you are counting includes ALL active AND terminated employees with account balances, as well as all beneficiaries with account balances. You would normally also need to include all active employees who are eligible to defer to the 403(b) regardless of whether they do (and thus have an account balance), but since you have a frozen plan this is not applicable to your situation.  

In addition to the lack of an audit, as a small plan you would file Form 5500-SF, which is an abbreviated filing that does not include many of the cumbersome schedules of the large plan filing, such as schedules A and C. This is a significant administrative convenience for small plan sponsors. Unfortunately, however, even small plan sponsors must complete the new IRS Form 8955-SSA filing, which all ERISA 403(b) plan sponsors will be required to complete for the first time in the 2010 plan year.  


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.