ADP refunds - reporting on 5500

[pmacduff]

Help! I am working with an auditor for the first time on a mutual client's 5500 form (over 100 parts. - long form - audit required). He is telling me that the 2003 ADP refunds MUST be put on the liability line on the 5500 form. We have always reported the ADP refunds on a cash basis in the year they are distributed. He says that if they are distributed before March 15th, then they have to go on the 2003 5500 form as a liability. I do report the contributions for this plan on an accrual basis, but have never done that with the refunds. I reread the 5500 instructions and don't seem to find a concrete answer. My feeling is that it could be done either way...Any opinions appreciated!

[jquazza]

I have to deal with some of these auditors as well. Basically, you should point them to the Schedule H instructions (line 1h.) It specifies that noncash basis plans should include distributions only if they were approved as of the last day of the PY but had not been paid. How were these corrective distributions approved if the tests had not even been completed?

[WDIK]

Line 1h is for operating payables, and the instructions for that line use the terminology total amount of "obligations" rather than distributions. It also does not use the terminology "approved as of the last day of the PY". Instead it states "have been approved for payment by the plan but have not been paid".

Line 1g is for benefit claims payable. The instructions for that line use similar wording - "benefit claims that have been processed and approved for payment by the plan."

[Archimage]

I will also note that the AICPA Audit and Accounting Guide says that refunds of excess contributions should be reported as a liability on the Statement of Net Assets Available for Benefits.

[Tom Poje]

Cute.

so when you fill out your form, for example,(if I understand things correctly)

you would have (column a)

1a begin bal = 100

b liabilities = -50 (corrective distribution)

c net assets = 50

suppose the only thing that happened during the year was the actually corrective distribution, then:

line 2f corrective distributions = 50 (instructions require you to include all distributions paid during the plan year)

per instructions line 1c, column b (assets at end of year)must equal

1c(column a) plus 2j net assets plus 2k(transfers)

therefore my net assets at end of year must equal 0 even though I really have 50.

There is nothing in the instructions for line 2f that says "also include corrective distributions that were paid before March 15"

or "Do not include distribution paid during the current plan year that were for the prior plan year failure"

[rcline46]

Now lets get this straight -

I have to put the 'expected' corrective distribution on the 5500

The 5500 is due July 31 (or October 15)

I actually do the testing on November 1 and distribute by 12/31 (all legally)

So I have to put the number on the 5500 already filed? Or do an amended 5500?

Not very likely.

Accountants LOVE to make extra billable work. IT AIN'T THEIR FORM. Follow the IRS rules.

[Archimage]

I believe the correct way to report them on the 5500 is to report the corrective distributions in the year they are paid. As I noted before this is different for preparation of the financial statements and this is why auditors think this. There is no requirement that the Sch H match the financial statements. However, this usually will spark a lively conversation with the auditor.

[Tom Poje]

rcline:

I understand your point of view, though the 'argument' from the original post refers to distributions made prior to March 15, not to ones made after that date.

Apparently the auditor says those are the ones you list as liabilities.

which of course means then you would have to put them on line 2f on the form 2003 even though they weren't really paid until 2004.

I don't read the instructions that way.