Tag Archive for: IQPA report

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Delaying a Plan Audit

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“My client started a 401(k) plan for her business last year on July 1. The plan operates on a calendar year basis. The recordkeeper just told my client that because her plan covered more than 100 participants last year, she has to include an auditor’s report with the plan’s Form 5500 filing. She has an extension to file, but time is running out. Is there any relief available for her?”  

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in New York focused on Form 5500 and plan audits.

Highlights of the Discussion

A little-known rule could buy your client some extra time to complete a plan audit. She should check with her tax advisor or accountant, but, generally, when a plan has a short plan year of seven months or less for either the prior plan year or the plan year being reported, an election can be made to defer filing the Independent Qualified Public Accountant (IQPA) report with the Form 5500 (see Form 5500, Schedule H Instructions).

In your client’s case, because the prior year (2022) was a short plan year with fewer than seven months, your client can delay filing an IQPA until the 2023 Form 5500 filing is due (i.e., in 2024). According to the 2022 Schedule H Form 5500 instructions, she should check the box on Line 3d(2) indicating the plan has elected to defer attaching the IQPA’s opinion until the following year’s filing. The 2023 Form 5500 should be completed following the requirements for a large plan, including the attachment of the Schedule H and the IQPA report which covers the short plan year in 2022 and the 2023 plan year.

Conclusion

A qualified retirement plan with a short plan year of fewer than seven months can catch a break regarding when it needs to include an IQPA report for the plan with its Form 5500 filing. Always be sure to check the complete Form 5500 filing instructions for a particular year, and confer with a tax professional for specific guidance.

 

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The New Way to Count Participants for Form 5500 Audits

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“I attended a conference where there seemed to be a great deal of confusion regarding the Department of Labor’s (DOL’s) newly released Form 5500 filing rules. One change relates to how plans count participants for the independent audit requirement. Can you clarify, please?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Colorado is representative of a common inquiry regarding Form 5500 filing rules for defined contribution plans.

Highlights of Discussion

Perhaps the most important detail about the new Form 5500 filing rules is that they pertain to the 2023 plan year filing, which will be done in 2024. Plan sponsors must follow the current rules for the 2022 plan year filing.

The DOL requires sponsors of employee benefit plans subject to the annual Form 5500 series of returns and schedules to include an audit report from an independent qualified public accountant (IQPA). There is an exception to this requirement for “small plans” (i.e., those with fewer than 100 participants at the beginning of the plan year) (DOL Reg. 2520.104-46).  The current rules count individuals who are eligible to participate even if they have not elected to participate and do not have an account in the plan.

For plan years beginning on or after January 1, 2023, participant count for the audit waiver will be based on the number of participants with account balances at the beginning of the plan year. This change is intended to reduce the number of plans that need to have an audit, lower expenses for small plans and encourage more small employers to offer workplace retirement savings plans to their employees.

For both 2022 and 2023, a plan may qualify for the audit waiver even if there are more than 100 participants. Under the “80 to 120 Participant Rule,” if the number of participants covered under the plan as of the beginning of the plan year is between 80 and 120, and a small plan annual report was filed for the prior year, the plan administrator may elect to continue to file as a small plan and, therefore, qualify for the audit waiver.

For more information, please see the final regulations for Annual Reporting and Disclosure.

Conclusion

The Form 5500 filing regulations, among other things, change the method of counting participants for purposes of determining when a defined contribution plan must file as a small plan, which also factors into whether the plan may be exempt from the IQPA audit requirement. Specifically, for 2023 and later plan years, plans are directed to count only the number of participants/beneficiaries with account balances as of the beginning of the plan year, as compared to the current rule that counts all the employees eligible to participate in the plan.

 

 

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Filing Form 5500 Without an Audit Report

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“My client is afraid the audit report for his 401(k) plan will not be complete by the October 15th extended filing deadline. Can he file Form 5500 without the audit report by the deadline, and provide the audit report later?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans, including nonqualified plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from West Virginia involved filing a Form 5500, Annual Return/Report of Employee Benefit Plan.

Highlights of Discussion

The Department of Labor’s (DOL’s) EFAST2 electronic system will accept a Form 5500 filing without the independent qualified public accountant (IQPA) audit report attached, however the DOL will treat the submission as an “incomplete filing and [it] may be subject to further review, correspondence, rejection, and assessment of civil penalties” (see Q&A 25 of FAQs on EFAST2 Electronic Filing System).

The guidance goes on to state that filers must correctly complete Schedule H, Part III, line 3 regarding the plan’s IQPA report. That means your client will only be able to fill in the information on 3(c) Name and EIN of the IQPA. Lines 3(a), (b) and (d) would not apply in this case and must be left blank. If your client files Form 5500 without the required IQPA report, he or she should correct that error as soon as possible.

Excerpt from Schedule H, Form 5500

 

Without the required IQPA report, the filing is incomplete and the DOL may (and likely will) reject the filing pursuant to ERISA Sec. 104(a)(5). If your client receives an official rejection letter or notice from the DOL, he or she has 45 days to resubmit the filing correctly [see ERISA Sec. 104(a)(5)] . Failure to submit a corrected filing allows the DOL to issue a notice of intent to assess a penalty. Note, there is a 30-day grace period to ask for waiver of the penalty due to reasonable cause [DOL Regulation 2560.502c-2(b) & (e)].

The DOL can assess a penalty of up to $2,400 a day for each day a plan administrator fails or refuses to file a complete report (ERISA Sec. 502(c)(2) and DOL Reg. 2560.502c-2). The IRS may separately assess penalties per the SECURE Act, effective for returns due after December 31, 2019, the IRS late fees are $250 per day up to $150,000. Both agencies could waive or abate those penalties if the plan sponsor can establish “reasonable cause” for the late filing.

The DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) encourages voluntary compliance with Form 5500 filing requirements and gives delinquent plan administrators a way to avoid higher civil penalty assessments by satisfying the program’s requirements and voluntarily paying a reduced penalty. Eligibility for the DFVCP is limited to plan administrators who have not been notified in writing by the DOL of a failure to file.

Conclusion

The DOL will accept a Form 5500 filing without the IQPA audit report attached, however the agency will treat the submission as an incomplete filing, subject to penalties if not timely corrected and resubmitted.

 

 

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