The Strange Saga of Schedule H

[Lori Friedman]

1. It's always been my understanding that assets held for investment (Line 1c) should agree to the investment assets reported on the audited financial statements. If you agree, what do you do with interest-bearing cash accounts that AREN'T classified as investment assets? For example, a plan's general operating accounts might be interest-bearing, but they're not investments. I've been putting these amounts in the catch-all bucket on Line 1e. Does anyone use a different approach?

2. When participant loans are secured by individual account balances, loans in default don't get reported on Schedule G or Schedule H. How do you handle the book/return difference for the defaulted loans? Where do you plug the amount on Line 2?

3. Is anyone else in October 17th hell? At this point, I'm probably over-thinking Form 5500 and not seeing things clearly.

[JanetM]

Am confused by reference to lines. But here's my take on them. Audited financial stmts should match 1f and 1l - total assets and net assets available. Is you general account a clearing account type of thing. We don't include that as plan assets........... theory being - accrual basis -you make a distribution and put money in clearing account it is not plan asset at point. Just because the cash sits until the distribution check clears doesn't mean you count it as plan asset.

Participant loans are a pain. Unless plan is in master trust Ido show loans on line 2e, I don't include deemed defaults on that line. I do include them on distribution line.

Am only in panic on two plans, audits aren't final. Other then that..... in in good shape this year.

LOL I do 5500s for all our companies plans and master trusts.

[Lori Friedman]

Just in case anyone cares, I found the answer to my first question. All cash-on-hand (non-investment cash) gets reported on Line 1a as non-interest-bearing cash. Use this line even if the bank account is interest-bearing.

Does this make sense? No. Is this weird and counter-intuitive? Yes.

Why do I even care about this matter? I work with enormous multi-employer plans that have large amounts of cash-on-hand. The plans regularly pay significant amounts of benefits, so they need to maintain large non-investment, operating balances. The balances are material and, therefore, warrant all this attention.

[Guest 5500]

Lori:

Just curious where you received that answer. I agree it's weird and counter-intuitive, it's also in direct conflict with the 5500 instructions. Sounds like it was from the DOL!

"Line 1c(1). Include all assets that earn interest in a financial institution account such as interest bearing checking accounts...". To me, it can't get any clearer; they are saying to include any account that earns interest in a financial institution, even going so far as to specifically include an interest bearing checking account, that most of us CPA's would not normally think of as an investment.

Since the 5500 instructions are quite clear, my position has always been to use the same classifications for the financial statements. If it earns interest, I include it in the investment section. I am not aware of any conflict with GAAP in this regard. Overall, it probably is not really a big deal either way, but if the financials use a different classification, it should be included in your 5500 reconciliation footnote.

To me, "cash on hand" is not the same as "non-investment cash". Cash on hand would be undeposited funds etc, that are not in a financial institution. I don't see how they could think of an interest bearing checking account as "cash on hand".

Some of these issues on the 5500 seem like nothing more than busy-work headaches! I don't know if anyone is better off for all the unusual definitions and other differences from GAAP.

[Lori Friedman]

5500, But of course this information comes from DOL. Who else provides such esoteric and unconventional wisdom?

Here's what's going on:

1. DOL is concerned about the reporting of investment assets vs. other plan assets. The issue relates to the exclusive purpose standard and whether fiduciaries are prudently investing plan assets.

2. If a plan is audited, DOL wants the GAPP classifications to be used on Schedule H.

3. Yes, Line 1c(1) clearly reads "interest-bearing cash". But, Line 1c is used exclusively to report assets held for investment. So, a non-investment cash account, which might happen to earn interest income, doesn't belong in this overall Line 1c bucket. Same thing for the income reported on Line 2b, which reports income from investment assets.

4. Line 1a is used for operating cash, whether interest-bearing or not. The line's instructions say to report "cash on hand or cash in a noninterest bearing...account" [emphasis added]. Any related interest goes on Line 1c.

Sorry to make such a big deal about something that's usually inconsequential! As I mentioned before, this question's relevant for huge plans with material amounts of cash sitting in interest-bearing checking accounts. My apologies for boring anyone who doesn't work with such plans.

[Guest 5500]

Lori:

I guess my next questions should really be addressed to the DOL and not you but they won't respond here.

Did they tell you this in a phone converstation or have they been taking this position at conferences etc? Is this something that is contemplated as a change to future 5500 instructions? While I agree with the reasons they gave you for wanting this change, it still clearly conflicts with existing 5500 instructions. There is no interpretative wiggle room (in my opinion) when the instructions say interest-bearing checking accounts are to be included in the investments section.

This is what they told you: "So, a non-investment cash account, which might happen to earn interest income, doesn't belong in this overall Line 1c bucket." Now this is what the 5500 instructions say for that line: "Line 1c(1). Include all assets that earn interest in a financial institution account such as interest bearing checking accounts...". When they have gone to the trouble of actually listing interest-bearing checking accounts as examples of items they want in the investment section, what in the world is left that could be considered a "a non-investment cash account, which might happen to earn interest income"?

This type of guidance that conflicts with the Form instructions is only going to make the 5500's less useful to them because it will result in inconsistant treatment. The reasoning is sound, but they have to get the instructions changed before they start telling us something that conflicts.

Or is it possible you were simply talking to a DOL rep that let common sense and an understanding of accounting get in the way when trying to interpret the sometimes strange world of 5500 preparation?