Wrong Plan Effective Date

[Medusa]

We had a plan on which from 1998-2006, we filled in the effective date on the 5500 as 01/01/98. It has now moved to a bundled provider and they are asking us to amend the 2006 return to reflect the correct effective date of 10/01/98.

Does anyone know if this will be a red flag at the IRS or DOL to request amended returns for all the prior years as well? I'm not sure to what extent they match up the effective date from year to year.

Med

[SheilaD]

Is it possible that the first contributions were made 10/1/98 but the plan effective date (as written in the plan document) was 1/1/1998? When we put in a new plan we generally make it effective as of the first day of the year even if contributions start sometime during the year.

[JanetM]

Ask the provider for reg site or ruling that explains the date on 5500 should be adoption date rather then effective date.

5500 preparers manual say this:

LINE 1c

Enter the original effective date of the plan, even if the plan has been restated. The effective date is stated in the plan document. If the filing is for a welfare benefit plan that does not have a formal document, show the date the insurance policy became effective. DFEs (other than GIAs) should leave this line blank.

[Bird]

I don't think it would trigger any request to correct all those prior returns, but still I would tell them if they feel it's so important, to do it themselves. Unless of course, as suggested, the effective date is correct anyway.

[Medusa]

Janet - I'm not seeing where the adoption date is an option. At least not in the information you provided.

Sheila - It would be possible but isn't the case here. The effective date is definitely stated as 1/1/98 in the plan document. Deferrals didn't begin until 10/1/98, but ... so what?

Bird - I agree with you.

[WDIK]

Point out the applicable section of the plan document to the bundled provider and indicate that you will not amend the filing to show incorrect information.

[Lori Friedman]

Deferrals didn't begin until 10/1/98, but ... so what?

The "so what" is that a plan doesn't operate until it has participants who are accruing some sort of benefit under the plan, whether vested or not. Thus, the plan's adoption date can be very different from the effective date.

It helps to think of the qualified plan -- a program to provide benefits -- and the related qualified trust -- an I.R.C. Sec. 501(a) exempt organization that holds plan assets -- as two separate "animals". It's not unusual for a trust to exist before the plan's effective date; for example, the trust might be created on the date of plan adoption, but the actual plan begins operating several months later. Similarly, a trust can continue to exist after a plan's been terminated.

[Medusa]

Deferrals didn't begin until 10/1/98, but ... so what?

The "so what" is that a plan doesn't operate until it has participants who are accruing some sort of benefit under the plan, whether vested or not. Thus, the plan's adoption date can be very different from the effective date.

It helps to think of the qualified plan -- a program to provide benefits -- and the related qualified trust -- an I.R.C. Sec. 501(a) exempt organization that holds plan assets -- as two separate "animals". It's not unusual for a trust to exist before the plan's effective date; for example, the trust might be created on the date of plan adoption, but the actual plan begins operating several months later. Similarly, a trust can continue to exist after a plan's been terminated.

But Lori - I know all that but how does that enable you to put the adoption date into the field for effective date?

[Guest Sieve]

I say don't change the entry on your 5500 - effective date is effective date, and adoption date is NOT effective date. A plan adopted on 10/1/98 (adopted means "signed", not "first $$ contributed") can still have an effective date of 1/1/98, if that's what the Plan says. If it does, then the maximum compensation under IRC Section 401(a)(17) is not prorated, because there is not a partial year. That is different from a plan adopted (signed) on 10/1/98 with an effective date of 10/1/98--in that case, there is a short plan year of 3 months with a pro-rated maximum compensation limit of 3/12 of the dollar limit. So, effective date is the date indicated in the plan document, NOT the date the first $$ are put in. If a psp was effective in and signed in 2007, but no contributions were made for that year, a Form 5500 would still be required for 2007 because that was the effective date indicated in the document--and, when it was filed, the annual report might show no assets or receivables, but it would still show an effective date in 2007. Schedule A is required for a DB plan even if there are no accruals and no assets in the plan's first year. If there is no money in the plan for the year, and no accruals for the year, that doesn't mean the plan is not effective that year. It's effective when the plan says it is (within IRS rules).

[BG5150]

If you get a letter, send the amended returns. If not, just keep rollin' along.

[Lou S.]

I wouldn't change it. Use the effective date in the adoption agreement. Tell them if they have a different position they should prepare the amded 5500s for their client.

[Medusa]

We had a plan on which from 1998-2006, we filled in the effective date on the 5500 as 01/01/98. It has now moved to a bundled provider and they are asking us to amend the 2006 return to reflect the correct effective date of 10/01/98.

Med

Maybe I'm not being clear. The new provider is correct about the date. I just didn't see the point of amending the return. After all, they're wrong all the way back.

Anyway, we decided to just do it instead of dickering over it.