First Plan year filing

[pmacduff]

I have a new (2002) calendar year 401(k) plan. The plan inception date was 10/01/2002. The client has a 3 month eligibility, but they let everyone in who was an employee on or before 10/01/2002. I'm preparing the 2002 5500 form. The plan has 123 participants as of 10/01/2002. There were 26 participants with account balances on 12/31/2002 with a total plan balance of $2,798.36. (The plan got started late with the deferrals and only had 3 or 4 weeks of deposits.) I know I'm grasping at straws here...is there any way to avoid having to do Schedule H and the client needing an independent financial audit for the 2002 plan year? Since the plan was effective 10/01/2002, I'm pretty sure I can't get around having the BOY 123 participant count & filing a Schedule H with audit...any input is appreciated...

[WDIK]

Since your short plan year is less than 8 months, you are eligible to defer attaching the accountant's opinion until the following year. See the Schedule H instructions for Line 3b(2) and 29 CFR 2520.104-50.

[pmacduff]

Thank you - but that just delays the inevitable, right? The client still needs the opinion attached to the 2003 return for both the 2002 & 2003 plan years?? I'm thinking I may as well let the client have it done this year and get it over with...it shouldn't be very involved with the small amount of assets & participants with balances...

[WDIK]

We had a similar situation with a total plan balance of just a few hundred dollars. No audit was filed and the DOL went for blood ($50,000). Eventually, on appeal the penalty was reduced to $2,500.

[pmacduff]

Whew! Thanks for the info...I guess I'm pretty comfortable then with having the client get the audit done for 2002!!