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Firm Getting Hammered On Audit Fees

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Just received the following question from a firm in the Midwest. Any thoughts on what this company should do?

 

Dan Otter

 

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We are getting nailed for these audit fees and the cost is the same, more or less, no matter which auditor we use. We're a non-profit CAP agency and the $11K would be better used for our clients or staff than for the audits. I'm the plan author and main fiduciary. Since we don't do a match, the main benefit to our staff is the availability of this pre-tax retirement account. We more or less just pass the money through as a deduction. My Exec. Director tells me that for the cost and effort involved for us, we either need to drop the 403(b) entirely, make it an IRA or 401(k), or find a way to cut costs or pass the costs on to participants. And this all needs to be done by year's end to avoid dragging it out again, which means getting it in front of the Board either this month or next. The core issue is the number of staff eligible and the number of participants. We've been around since the 60's, so we have a few who no longer work here that are still in our old plans, 180 current staff - 150 of whom are eligible - and 122+ currently enrolled in the plan overall. The magic number is 100 to trigger audits. I've tried the DOL, EBSA, and IRS to find out if it would be possible to split the current plan into 3 separate plans based on date of hire, which could be used to get us under the 100 for each of the three plans. They keep handing me off or leaving me on hold. I spent 90+ minutes listening to IRS Musak yesterday waiting for someone to come on who knew about 403(b)s. I finally gave up and went home. The local office just refers me to the national office, where I sat on hold. When I came up with this, I based the idea on something fair to all of the participants that would avoid discrimination. The tradeoff of filing three 5500's instead of one and paying those fees still saves the organization $6K per year.

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There really isn't a whole heck of a lot you can do because you cannot go to a Simple IRA because of the # of employees. It seems like a waste to try to create separate plans. Also, you are going to have to go through and audit if you're a 401k and over 100 participants.

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Update: The firm was informed that they will receive a response from the IRS in 30 days. But since this (any decision) would have to go through the firm's board for approval this is "problematic." Also, the vendors have been of "little, or no help on this question."

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Dan Otter

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We finally decided to contact an attorney that specializes in 403(b) plans and he'd never heard of anyone splitting a plan into 3 plans to get the numbers down and avoid an audit (and related costs), but his "gut feeling" was that it wasn't legal. However, he's going to research it and find out for sure.

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We finally decided to contact an attorney that specializes in 403(b) plans and he'd never heard of anyone splitting a plan into 3 plans to get the numbers down and avoid an audit (and related costs), but his "gut feeling" was that it wasn't legal. However, he's going to research it and find out for sure.

 

If you've gone as far as to engage an attorney ask him also what you can do to avoid ERISA, if possible. By avoiding ERISA you avoid the 5500 and audit fees.

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We finally decided to contact an attorney that specializes in 403(b) plans and he'd never heard of anyone splitting a plan into 3 plans to get the numbers down and avoid an audit (and related costs), but his "gut feeling" was that it wasn't legal. However, he's going to research it and find out for sure.

 

If you've gone as far as to engage an attorney ask him also what you can do to avoid ERISA, if possible. By avoiding ERISA you avoid the 5500 and audit fees.

 

Yeah, that's on the agenda too. Part of that issue is that once you fall under ERISA, it becomes difficult to get away from it.

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After long conversations with a lawyer, DOL, and IRS, it looks like we're stuck with it. The lawyer wasn't much help, referring me to DOL. i did ask what else we could do and it comes down to killing the 403(b) entirely and rebooting it later with a different plan document and requirements in order to get the participation down far enough to avoid ERISA. Is this good for staff? Not really. Many will simply take the $$$ they had in their accounts and buy a new truck or groceries. We don't do a match. Oh well, worth a try at least.

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