JohnCheek

Ok, so the small plan audit question clearly wins. I know I'm spoiling the "game" but the rest of the significant changes to the 5500 were highlighted on my web site at http://www.cpaspan.com/Changed5500.htm

In the past, the DOL made it clear that deemed distribution loans do still exist, and continue to be an obligation of the borrower. Even after a loan is deemed distributed, a participant should repay the loan if possible-- that allows for more money in his retirement account to grow tax-deferred, which was the whole point of having a retirement plan. Repayment should not be considered an after-tax contribution, so whether a plan allows after tax contributions should not be relevant. Clearly, it can not "prohibit" repayment of the loan. When repayment is made on a loan that was deemed distributed, that gives the participant basis in his retirement account, and that basis would be recovered based on the regular annuity rules, ie. ratably over his lifetime distributions.

Jeffrey, if you have a POP with more than 100 participants, does that automatically require 5500 reporting as a welfare plan?

Mike, I've seen many bonds over $500k, but they were for multiemployer plans, where each plan needed at least $500k of coverage, and a single bond covered several plans. I have not yet seen the extra coverage actually obtained in order to preserve the small plan exemption from audit. Whe DOL announced the new requirement, it discussed the issues with bonding industry reps, who suggested a type of adverse selection might make extra coverage a bit more expensive than the basic coverage, but no one suggested that the extra coverage could not be obtained. Maybe you could fire the son and pay out his benefit to a rollover IRA. Then you have an EZ, and no audit.

If it were just the H and W, you could file an EZ and avoid the audit that way, but the inclusion of the son seems to require a 5500. Trustees or not, I think you need a fidelity bond, unless you could argue that none of the trustees "handle funds". I think the 35% real estate-- a nonqualifying asset-- triggers an audit requirement, unless you buy the extra fidelity coverage. The coverage shoul be very cheap, so I would not be elooking to restructrure the plan just to avoid an audit. An audit, even with almost no activity and only 3 participants, still requires some CPA time, and therefore would still cost more than the extra fidelity bonding.

I have not worked with any pension plans that were fully insured; most pension plans-- db or dc-- include a trust, and therefore are subject to the audit requirement- unless some other rule allows them an exception. Most fully insured plans are welfare plans. It is possible, however, to provide pension benefits exclusively through the purchase of annuity contracts. The instructions to the 5500 describe this under "Limited Pension Plan Reporting" (around page 7), and refer to 29 CFR 2520.104-11(B)(2).

Was this thread really started two years ago? 1. The DFE itself is not required to attach an audit opinion, but a plan that invests in a DFE is not exempted. 2. Limited scope exception is not a broad as you described. It means that the audit (which is still required) can exclude certain financial data from its scope. The excludible data is: investment data that is certified as complete AND accurate, by a bank, insurance company, or similar entity, which holds the investments, is regulated, etc. Some banks will pay benefits, etc, and they include that information in the data they certify, but the limited scope exception does not allow the audit to exclude anything but investment information. In addition, there are other areas of the audit, such as tests of participant data, plan expenses, etc., which are still required. 3. Another exception to audit, is when plan is unfunded or fully insured... but any plan invested in a DFE is not unfunded.

I'm not sure I agree with Blinky about needing two separate returns for each plan. If you really have two plans, you should file two 5500s. Since you have a controlled group, each 5500 will include Schedule T participation data for the whole group, as if it were one company. You may have to "aggregate plans" when doing the testing for the Schedule T of the smaller company.

Yes, that is my suggestion. After you identify the new name, consider adding "(formerly Acme SIMPLE 401(k) Plan)" On the 5500, DOL generally identifies your plan based on the sponsor EIN and the Plan number. So long as these don't change, DOL should correctly assume that this is a continuation of last year's plan.

I think the answer depends on the paperwork. Did you adopt a new plan, or did you amend and restate the old plan?

Actually, you might meet an exception, and not have to file a 5500. See the instructions-- an unfunded, dues financed welfare plan can be exempt from the 5500. If this sounds like your plan, you should check further into ERISA regs. 2520-104-26 to make sure.

Cathy, I think the correct way to file is: one Schedule A, because your company had one contract, even though it was transferred to a second company. The one Sched A would report all the data for the policy year that ended within the plan year, ie, combine the data from the two forms prepared by the two insurance companies. However, if you chose to file two Schedule A's, that should not be a problem, either. For Schedule D, I am assuming your money is in a pooled separate account... so the answer depends on whether Company 2 continued to administer Company 1's PSA, or whether Company 2 transfered those funds into it own PSA. (Since the only purpose of Schedule D seems to cross reference filing by plans with filings by DFE sponsors, the practical answer would be to do whatever the Sponsor did)

Line 2(g) is for "deemed distributions", which are loans that go into default or are otherwise no longer eligible under Section 72(p). Although a "deemed distributed" loan is reportable on Form 1099-R, and can be removed from the balance sheet as if it was no longer an asset of the plan, it is still an asset for some purposes, and the loan still exists. What was described above sounds like a real distribution.

I don't think so. On separation from service, you are paying out the former employee's account balance (or part of it). The assets paid include a loan that is receivable by the plan. I can not see any other way to characterize this, other than as a payment of a benefit to a participant.

No C is required if there is nothing required to be reported on C.

I think the difference between "held by" and "purchased by" is pretty clear, and there is nothing you can do with a real estate limited partnership to conveert it into a qualifying asset. So, your choices are 1) do an audit, or 2) buy more bonding. Of the two, the bonding is cheaper.

When I have filled in the Sched C, I have been more comfortable when I could report the prior auditor was retiring, or the trustees found an auditor with more experience in ERISA audits (that's me), or some other explanation that did not necessarily raise a red flag. Changing because of fee considerations would also be un-remarkable. Once I asked a trustee what explanation he wanted me to put down, and he said the fund changed because "Vinny (my former partner) was a better golfer". I assumed he meant to say something about the new firm having more relevant experience, so that's what I wrote. I have not heard directly from the DOL, but I imagine they don't like words like "fraud", "missappropriation", "collusion", etc. They probably are also unhappy if the explanation implies "opinion shopping", ie, the plan relpaced the old auditors because the new guys would agree to an accounting treatment that the management wanted. Of course, in the end, the explanation on Schedule C must be truthful, even if it is a bit embarassing to someone.

Schedule A Part II question 5 is for "contracts with allocated funds", meaning the policies are owned by the participants. That sounds like your individual flexible premium annuity contracts, so you can't just answer N/A . I would answer that the premiums are "based on the contribution formula in the plan document." If you can get more specific, (eg, based on x% of compensation, or based on $1.50 per hour worked), that's ok, too.

I would point out to the administrator that the downside of reporting honestly--- reporting a prohibited transaction on Schedule G, making the plan whole by paying the lost income, and paying the excise tax -- is a lot less onerous than the effect of being caught filing an answer that is clearly wrong. I would point out the penalties for failing to file a "complete" report, and that the administrator is signing the 5500 under penalty of perjury. And finally, I would note that a participant complaint is the most likely cause of a DOL visit, and participants have an uncanny way of getting upset about late contributions, so there is a good chance that DOL could find out about late payments even if the 5500 does not report them.

I agree with Janet, once the check is issued, the check is no longer a plan asset, and I would not count that person as a participant. This would be the case whether the plan was on the cash basis or the accrual basis. The only exception-- if a participant could not be located, I could not treat an "issued check" as a distribution.

I think that your filing status should determine how you report the welfare and fringe plans. If your 3 companies are part of a controlled group (or under common control, or an affiliated group) then you report them as if they were a single employer. In that case, I think one 5500, from the "sponsor", would cover the self-insured plan for all 3 companies. For the fringe benefit plans, each plan needs a separate Form 5500 with a Sched F , but I think each F is reporting on the group as if it was one company. In other words, for question 2, total employees of the employer should count all three companies' employees. If your group is not a controlled group etc., your welfare plan is probably a multiple employer plan, and the fringe plans are probably single employer plans, and the way you are filing sounds right to me.

Schedule P is never "required", but is highly recommended. Filing the P starts the statute of limitations running on the Trust's tax year. Sched P only works if it is attached to the the 5500 when filed, ie, you can't file it separately and you can't attach it to an amended return. I always thought the Sched P had to be attached to the timely filed 5500, but as I review the instructions, that's not there. I would attach, even if the EZ is late.

Also, consider the nature of the plans. If the two union plans are single employer plans (and this includes plans for a controlled group), then you, I assume, are probably the plans' sponsor and administrator, and you would be required to file the 5500 and comply with the audit requirement. On the other hand, if the union plans are multiemployer plans, then the sponsor/administrator would be the board of trustees, and they would be filing the 5500 and addressing the audit.

Nope, a mutual fund is not a pooled separate account. A PSA is an investment with an insuarance company, solely for assets of employee benefit plans, which plans are sponsored by more than one employer. (Count controlled groups of corps as one employer).

The instructuctions, for a 401(k) plan, say to include anyone who made a contribution to the plan for this or a prior year. Consider each person's account balance to include their contributions, earnings thereon, minus forfeits -- your plan language probably says that. So a participant can have an account balance, even if the contribution was not yet transmitted to the plan. Probably more important, item 1 of question 7 would definitely include these people in the total participant count.