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Audit Exemption


bzorc

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Company started a new plan, with a 1/1/2019 effective date. 2019 Form 5500 was filed, with a beginning of the year participant count of 188, making plan subject to audit. However, on Schedule H, Part III, the Form 5500 prepared and filed on EFAST checked box 3d2 - the audit will be attached to the next Form 5500 pursuant to 29 CFR 2520.104-50 (less than 7 month exception). Our reasoning for the exemption is that, for plan eligibility purposes, the plan Adoption Agreement indicates that anyone employed on July 1, 2019 was eligible. According to the plan sponsor, deferrals began in August 2020.

The 2020 Form 5500 has not been filed, as the TPA will not file the return without a 2019/2020 audit. We have been brought in to perhaps prepare the 2019 and 2020 audits. Question:

Can the plan claim the exemption for a year less than 7 months, utilizing the eligibility feature noted? Or should we, if engaged, recommend an amended 2019 filing with a 2019 audit, once it's complete, attached to the amended return?

Thanks for any replies.

 

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So do I. The TPA is a well known one, so I'm surprised that they checked that box. And surprised they wouldn't file 2020 without an audit. Opens the client up to having to file under DFVCP, instead of waiting for the DOL 45 day letter.

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1 hour ago, bzorc said:

So do I. The TPA is a well known one, so I'm surprised that they checked that box. And surprised they wouldn't file 2020 without an audit. Opens the client up to having to file under DFVCP, instead of waiting for the DOL 45 day letter.

I agree with BG here as well, protect yourself from any fallout of this ticking timebomb.  

As for 2020, they may actually be better off with DFVCP.  If they got a 45 day letter now, are you that confident that you could get two years worth of audits done in time?  The DFVCP user fees are rather small compared to possible penalties if they are not eligible for DFVCP.

I'm more surprised that the TPA filed using the short plan year exception for the first year without actually having a short plan year.  Did they even indicate on the return that it was a short plan year?  What date did they use for the effective date?

 

 

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