Continental Benefits Group, Inc.
Law Firm of G.M. Morrison, P.C.
Go To Home Page
ERISA's Audit and Fidelity Bond Requirements
By: George M. Morrison
Useful Link: Obtain a Quote/Purchase a Bond From Colonial Surety
The Department of Labor amended its regulations concerning the reporting requirements with respect to small plans. In general, ERISA requires the engagement of an independent qualified public accountant and the filing of the opinion of the accountant as part of the plan's annual Form 5500. However, DOL regulations provided a waiver of the accountant's report requirement for plans with fewer than 100 participants at the beginning of the plan year.
The amended DOL regulation provides that a plan with fewer than 100 participants is exempt from the accountant report requirement if, with respect to each plan year, the following conditions are met:
1. (a) At least 95% of the assets of the plan constitute "qualifying plan assets" or
(b) any person who handles assets of the plan that do not constitute qualifying plan assets is bonded in an amount not less than the value of the non-qualifying assets;
2. The summary annual report for the plan includes the following additional information:
(a) Except with respect to qualifying employer securities, participant loans and qualifying self-directed accounts, the name of each regulated financial institution holding (or issuing) qualifying plan assets and the amount of such assets held by the institution as of the end of the plan year;
(b) The name of the surety company issuing the plan's ERISA bond, if the plan has more than 5% of its assets in non-qualifying plan assets;
(c) A notice indicating that participants and beneficiaries may, upon request and without charge, examine or receive copies of evidence of any required bond and copies of the statements received from the regulated financial institutions describing the qualified plan assets; and
(d) A notice stating that participants and beneficiaries should contact the PWBA if they are unable to examine or obtain copies of the statements or evidence of the bond, if applicable; and
3. When requested by a participant or beneficiary, the administrator makes available for examination, or provides copies of (at no charge), the evidence of any bond required by the Regulation and the statements from the regulated financial institutions.
The Regulation defines the term "qualifying plan assets" to mean:
1. Qualifying employer securities;
2. Participant loans;
3. Any assets held by the following institutions:
(a) a bank or similar financial institution;
(b) an insurance company;
(c) a broker-dealer registered under the Security and Exchange Act of 1934; or
(d) any other organization authorized to act as a trustee for individual retirement accounts under section of the Internal Revenue Code;
4. Shares issued by a mutual fund company;
5. Investment and annuity contracts issued by an insurance company; and,
6. 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 referred to in paragraphs 3, 4 or 5 above, describing the assets held (or issued) by such institution and the amount of such assets.
The final Regulation makes the amendments to the audit waiver condition applicable for the first plan year beginning after April 17, 2001 (180 days after publication in the Federal Register). Thus, the new rules will not apply to calendar year plans until 2002.