Are small plans required to be audited if at least 90% of assets are invested in qualifying plan assets?

The correct understanding centers around the requirement for audits of small plans based on their asset allocation. Specifically, a small plan, which generally refers to a 401(k) plan with fewer than 100 eligible participants, is not required to undergo an audit if at least 95% of its assets are invested in qualifying plan assets. Qualifying plan assets include various types of investments such as mutual funds, government securities, and certain types of insurance contracts.

If 90% of the assets are qualified, this does not meet the threshold specified by the regulations, which sets the bar at 95%. Therefore, a plan with 90% qualifying assets would indeed still require an audit. Since the requirement stipulates a minimum of 95% for audit exemption, the correct reasoning highlights the importance of this specific percentage in determining the audit requirement and why the other options are not accurate. For instance, audits become necessary when non-qualifying assets represent any significant portion of a plan's assets, as noted in one of the options.