5500 disclosure

[Guest oxdougw]

In the 5500 audit report the auditor reported that deferrals from payrolls on the 15th of the month weren't deposited until the final payroll of the month. They reported this as late deposits and calculated a representative amount of interest that the employer was to deposit for their "use of the funds". This was reported on Schedule H along with a 5330 filing.

Since we are 8 months into the new year do they have to make up the interest on the interest calculated to be deposited as well?

[Guest PAL100759]

I've never heard of an auditor determining that contributions from the 15th that aren't deposited until month end are late contributions. What made them determine that? Also, I'd be interested in knowing who your auditor is or at least if they are one of the big 4 accounting firms so that I can be prepared if this comes up with my plan audits.

Thanks.

PAL

[austin3515]

If you're saying that the money was only 2 weeks later than usual, and not outside the 15 day outside window, I agree (as an auditor) that calling that a PT is a bit aggressive.

Mind you the DOL may agree that it is a PT, however, there is substantial grayness involved before the outer window such that the benefit of the doubt goes to the client...

If I saw this I would include it as a management letter, indicating that they should pay better attention and be aware of the risk.

[Guest oxdougw]

It was a big 4 firm and I'm sure it happens elsewhere. What are your takes on making up additional interest from the first of the year?

[austin3515]

You would have to calculate "interest on the interest."

You haven't schedule G yet, so just to be safe, the interest, plus the "interest on the interest" is the PT to be reported on Schedule G.

[Alf]

What they might be saying is that by remitting all payroll deposits after the end of the month, you are violating the participant contribution rule. By remitting the end of month payroll deferrals within a couple of days after that payroll, you demonstrate that you can administratively remit these contributions in a number of days. Therefore, it is a violation of the participant contribution rules to hold the mid month payroll deferrals for 2+ weeks. If that is their position, I do not think it is agressive at all.

I don't think that interest on the interest is relevant if I understand your post. First, make the plan whole by crediting lost EARNINGS to participants. Then complete the 5330 by determining the INTEREST the employer saved from the interest free loan from the plan. This lost interest doesn't have to be paid to anyone, does it? It should just be a means of calculating the 5330 excise tax.

[austin3515]

What you said about demonstrating the ability to segregate the funds in twod ays is true. And I don't dispute that the DOL would give them a hard time on this if they came in. But I have spoke to a few ERISA attorneys on this and they all seem to agree that it could be argued that as long as the money is in within the outside 15 day window then the area is gray enough to give the sponsor the benefit of the doubt. But it is a matter of professional judgment.

And the lost earnings do go to the affected participants in order to make them whole. Also, if 8 months have elapsed between the time of the late deposit and the time of the correction, than you would certainly need to calculate "interest on the lost interest" in order to make the Plan whole.

[Alf]

Let's say "earnings on the lost earnings" should be credited. I agree that the "late" contributions, lost earnings on the late contributions, and lost earnings on the lost earnings should all be credited to the participant's account.

[Guest oxdougw]

Thanks for the great discussion. I appreciate your advice and opinions.