Retirement Plan Audits

[bzorc]

A question has come up during audit season, and that is how to report contributions receivable. I am always of the belief that contributions should be shown on the audit (and 5500) on an accrual basis, but a partner has questioned as to whether or not it could be reported on a cash basis, to tie to actual contributions received by the trust in a Money Purchase plan situation where contributions are funded monthly. That is, the December contribution, received in January of the next year, is shown on next year's 5500, while last years December contribution is shown this year.

Any comments would be appreciated. Thanks!

[John A]

1998 5500 instructions, page 17:

"Lines 31 and 32 - Use either the cash, modified accrual, or accrual basis for recognition of transactions on lines 31 and 32, as long as you use one method consistently."

Hope this helps.

[Guest PeterGulia]

If your firm allows a choice of methods (see below), you should get the plan administrator to instruct its preference since the plan administrator is responsible for the plan's financial statements.

Although the Form 5500 Instructions may reflect what the DoL might accept on that Form, an independent cpa still must render his/her opinion on whether the plan's financial statements are fairly stated under generally accepted accounting principles. For that, your source is FASB/AICPA publications. However, some practitioners believe that the views of the DoL Office of the Chief Accountant (which probably are reflected in the cited Form 5500 instruction) may suggest an inference about what is GAAP.

I'm not a cpa, but perhaps you might allow cash basis for a profit-sharing plan IF you feel that it's fair in light of the plan's circumstances and activity.

For a money purchase plan, consider the employer's IRC 412 funding obligation to the plan, and consider how the plan's financial statements and Form 5500 may relate to the employer's tax return and IRC 404 deduction.

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[BeckyMiller]

I am a CPA and have served on the AICPA's committee that revises the audit guide for plan audits.

The comments above are accurate. The DOL will accept filings that are cash basis, modified cash, etc. The footnotes to such filings may include a description of any departures from GAAP. See SAS No.s 62 and 77. This is described well in paragraphs 13.20 through 13.23 of the 1999 AICPA Audit Guide on Benefit Plans.

If you look at the statute or the regulations under ERISA, you will find references to GAAP only. It is the filing instructions to Form 5500 which provide for alternate methods. This flexibility is continued in the new Form 5500.

In my practice, I have found that accruing the contribution is easier. That way the figure will tie out to the plan sponsor's tax return (if on the same period), the sponsor's financial reports, etc.