E as in ERISA

I think that the past year's events should make it clear that we want auditors to stick to their guns and require that clients comply with the rules in order to get favorable opinions. When the IRS or DOL is performing the audit, the client can't get a closing agreement without first demonstrating satisfaction of the requirements.... The same should be true of independent accountants' audits. But the clients pay their fees, so there is signficant pressure to buckle under and issue reports even when all the requirements have not been satisfied.

Some will "forfeit" balances that are less than the cost of administering a distribution. For example, it might have cost $20 to process your $5 distribution, so the logic is that you wouldn't have received anything anyway.

My understanding is that the auditor wants confirmation that the tests has been passed in order to provide assurances that the plan remains qualified. If there is significant risk of disqualification, then the auditors might have to request the client to book a tax provision on the financial statements before they can issue their opinion. The IRS rarely disqualifies a plan. The main risk is that there are penalties or corrective amounts that should be booked on the employer's (not the plan's) financial statements. So many times the auditors will allow the client to promise to perform the test and take any corrective action within a specified time period. But if they come back the next year and find that the client never did that, then they will be unlikely to issue the audit until it is actually completed!

The issues are generally easier for retirement plans than for welfare benefit plans. In an asset sale, the seller continues in existence as a separate legal entity that can maintain the plan. So the plan doesn't automatically transfer to the buyer. In a stock sale, the company and the plan move together. But be careful about new forms of transactions. A sale can be effected through a the sale of the LLC interest, and this may be called an "asset sale" for tax purposes if the LLC was a disregarded entity. For retirement plan purposes, you generally treat an entity the same way it is being treated for other tax purposes. But in this case you might need to look at it from a legal standpoint. If the LLC was the sponsor of the plan, then the LLC and the plan may move together.... I don't believe that the IRS has not clarified this issue.

I agree that alpha makes the most sense for 5500s -- its a unique set of forms and the instructions put them in alpha order. But I woudn't base it on 1040 procedures -- there are actually "attachment sequence" numbers for the 1040s -- which in the past were not always in the same numerical order as the form numbers themselves.

Many business owners have "deferred compensation" in the form of an appreciating business (including goodwill, etc.). It depends a lot on the type of business involved. They could consider investing in growth assets (real estates, stocks) where the gains wouldn't be recognized until they are sold. They could consider a consulting agreement or noncompete agreement, etc. that pays out after a person terminates or retires (and which is funded by receipts at the later date). This can be risky for the partner.

The only thing that I've seen the auditors do is issue a management letter suggesting that they obtain the bond. But it generally doesn't have financial statement impact for the plan.

You are correct. Employee contributions are pre-tax only if they go through a 125 arrangement. But many people get confused about what they have. A 125 arrangement is just a choice of cash or nontaxable benefits. The existence of a valid 125 arrangement depends on the plan terms, not the funding. If the terms of the 125 plan provide for both flexible spending accounts and for pretax premiums on the health and dental plan, they may be okay. The director may be getting confused because someone may be separately administering the flexible spending accounts in a separate fund or account. But the premiums do not actually have to "run through" that fund or account in order for them to be pre-tax. It is only necessary that the document terms cover the premiums. Check the plan document.

"Receivables" are an asset, not income. You need to look at the related income recognition. It might depend on whether he is on the cash or accrual basis -- i.e., whether he already recognized the income while with the business and is just waiting to get paid...or the income hasn't been recognized yet either.

I agree with Mike. My understanding is that for 403(B) arrangements the 415 rules apply more at the employee level, so an arrangement may be aggregated with plans of other businesses that the employee controls. But it is unlikely that it will be aggregated with a 447 (that is not subject to 415 and that the employee is unlikely to be controlling). Prior to EGTRRA, 457 (B) contributions were reduced by elective deferrals to a 403(B), etc.

It depends on how you are filing. For paper, you generally only attach forms that change; for electronic, you generally file all forms again. See the instructions for the 5500.

Yes

It was my understanding that you have to satisfy RMD requirements from each qualified plan separately by taking a distribution, but you can satisfy your RMD requirements for all IRAs by taking the distribution from one IRA.

I am not an auditor. No one would accuse me of siding with auditors!!! But I do understand their limitations. They shouldn't change the $21 themselves. The client is the source for the numbers on the audited financials. If the auditor wants to get that number changed, he has to record a proposed adjusting journal entry in the workpapers and take it to the client for approval and get the client to change the financial statements. The client have to record an entry in the plan's financial statements to make the change. They normally would pass on an entry that is $21. It is much, much easier to change the 5500, even if that makes it wrong!

P.S. If you are having real problems: (1) Request that the client be included in any discussions about changes to the 5500 (so that the client can update its records as necessary to reflect the changes, too); or (2) Send a note to the client stating what changes you made to the 5500 at the CPAs request. (If the CPA is finding real discrepancies between what the client is reporting and what you are reporting, the CPA would probably be doing the same.).

Which should also be includible in W-2 compensation....

If you intentionally prevent the CPA from completing the audit, you will get yourself in trouble. When a CPA requests changes to the 5500 that does not mean that they are saying there is an error in the TPA records. First note that the CPA doesn't create the financial statements -- it only reviews them. So those are not the CPAs numbers. They are getting them from the client and the trust records. The CPAs scope/materiality requirements sometimes actually prevent them from changing small differences. E.g., if they correct the audit numbers to match your $21 difference, then that might lower their scope/materiality for other purposes. In effect, they are sometimes prevented from changing their numbers because of materiality -- so you may have to change yours even if the audit is wrong. Another reason for changes to the 5500 is that the audit and 5500 are on the accrual method and TPA records are generally on the cash method. So there need to be adjustments for accruals. The CPA is required by auditing standards to review the Form 5500 and make sure the numbers match before it can issue the audit (and if there are any discrepancies, then either the Form 5500 must be changed or the client has to get the client to change its footnotes to describe the differences). If the CPA can't issue its audit, the client is at risk for $50,000 for failure to attach an audit to its 5500. If the CPA issues an audit without performing the necessary steps of reviewing the 5500 and reconciling it, then the CPA is subject to sanction by the DOL and state boards. If you prevent the CPA from performing necessary steps in the process then the finger will be pointed at you. They will be able to prove to the client that there are rules that require them to review your 5500. But you will not be able to point to any rules that require you to review their audit. It sounds like you are working with very uncooperative CPAs who reflect poorly on the profession. They often have problems getting info from TPAs -- it sounds like they should be happy to work with you! P.S. AndersEn is spelled with an "E."

What I mean is that reduction in participation has to be caused by employer's actions -- e.g., a plan amendment, firing, layoff, etc. If you only have a reduction in participation by voluntary termination and no action of the employer, then you don't have a partial termination.

First, why would there be a partial termination when the two employees left, presuming they left voluntarily? Don't you need both a corporate action and a reduction in participants in order for a partial termination to occur? Second, as RTK noted, you can't have a reversion from a DC plan unless you have 415 suspenses -- which doesn't seem to be the case here. I agree with mbozek -- you need to amend the plan so that some of the current employees get an allocation and become vested. Then you can terminate.

They deal with different issues in relation to loans. E.g., the proposed rules have provisions relating to military leave that were not covered in those made final. I believe that the proposed regs are still in proposed form.

A loan to a party in interest is a prohibited transaction if it does not meet ALL of these requirements in the exception in ERISA 408: (a) available to ALL participants on an equal basis; (B) not made to HCEs in an amount greater than made available to other employees; © made in accordance with specific provisions in plan; (d) bear a reasonable rate of interest; and (e) adequately secured. Don't both loans violate the first three rules, and don't the second loans violate the first four rules?

Considering those loans as prohibited transactions (because they don't meet the ERISA exception for loans), having them repaid immediately, paying the excise tax...

As long as Company A's never maintained Company B's plan, then you can generally ignore the prior service for vesting.

Yes. Final at http://www.benefitslink.com/taxregs/72p-final.shtml Proposed at http://www.benefitslink.com/taxregs/72p-pr...osed-2000.shtml

Did Company B have a plan? If so, what happened to it (e.g., was it terminated prior to the transaction, is Company A maintaining it, or is it merged into Company A's plan)?