Orphaned plan audit

[Guest jim williams]

We are the TPA for an orphaned plan where the plan sponsor filed for bankruptcy, terminated all employees, and closed their offices. We are in the process of terminating the plan. A plan audit is required for which the accountant's fee will be paid from the plan assets. If we decide not to have an audit conducted and file Form 5500 without the accountant's report who would the DOL & IRS impose delinquent filing penalties & fees? The bankruptcy estate?

[Medusa]

We had a similar situation a few years ago. In that case, the audit was actually completed, but it was deficient according to DOL correspondence we received. After the accounting firm revised the audit, we found we had to file an amended 5500 because the financials changed. We filed that within the timeframe allowed by the DOL, but through a miscommunication with the accounting firm, no one responded directly to the party who initiated the deficiency letter. They then assessed an $88,000 penalty, which they subsequently agreed to reduce to $8,800. However, the client was in the same position as yours, and there was no one to pay that penalty, so the DOL ended up never collecting.

There are probably all kinds of loopholes surrounding this issue, so I would never advise you to take this route. I do not know if the DOL dropped the matter because the amount involved wasn't worth it, or perhaps because we had in fact made an effort to comply. Who knows if they would act the same today.