Who can act as an IQPA?

[Guest CFP in Philly]

A client of mine has received a notice from the DOL of the need for an "Accountant's Opinion". The plan is tiny with only about 20 participants, but there are over 100 eligible employees.

Unfortunately, I was not aware of the need for an Accountant's Opinion, and the TPA never mentioned the subject when the plan was set up.

So what I'm wondering is: can the company's accountant act as the IQPA, or does it need to come from someone with no other association with the business? Also, what is the typical cost? This plan only has $30K or thereabouts in it. There are less than 10 active participants. The plan is basically an afterthought that the company owner has in place just in case employees want to use it (it's a staffing company, so employee turnover is very high).

I'd appreciate any guidance anyone has on the subject.

[Bird]

A client of mine has received a notice from the DOL of the need for an "Accountant's Opinion". The plan is tiny with only about 20 participants, but there are over 100 eligible employees.

To be accurate, there are over 100 "participants" but only 20 with account balances. And there is your problem.

I am curious about how this came about; did someone prepare a return showing that many participants and not know the opinion was required, or...? Sounds like someone messed up.

As for cost, I don't know but it's safe to say "more than you'd expect, and enough to really PO the sponsor." A plan of that size needing an accountant's opinion just shouldn't exist. Someone needs to look at 1) whether the numbers are accurate; maybe eligibility is such that not everyone thought to be eligible really is, 2) whether the opinion really is needed (the threshold is effectively 120) and 3) reconfiguring the plan, possibly be amending eligibility or by having more than one plan. I'd start by talking to the TPA.

[Guest CFP in Philly]

A client of mine has received a notice from the DOL of the need for an "Accountant's Opinion". The plan is tiny with only about 20 participants, but there are over 100 eligible employees.

To be accurate, there are over 100 "participants" but only 20 with account balances. And there is your problem.

I am curious about how this came about; did someone prepare a return showing that many participants and not know the opinion was required, or...? Sounds like someone messed up.

As for cost, I don't know but it's safe to say "more than you'd expect, and enough to really PO the sponsor." A plan of that size needing an accountant's opinion just shouldn't exist. Someone needs to look at 1) whether the numbers are accurate; maybe eligibility is such that not everyone thought to be eligible really is, 2) whether the opinion really is needed (the threshold is effectively 120) and 3) reconfiguring the plan, possibly be amending eligibility or by having more than one plan. I'd start by talking to the TPA.

The company is a startup, and the business owner wanted to keep costs low, but did want to have a 401k in place. As a result, we used a low cost provider (it's a bundled plan). I've been very unhappy with that provider - you get what you pay for - and this is yet another example. At no point was the issue of accountant's opinion raised when we set things up, and the letter from the DOL is the first I've heard of the issue.

Going forward we could reconfigure the plan to limit eligibility, but that's not going to help for this year's filing... or next year's I suppose.

I've got a call into the the TPA (maybe that's not the right term with a bundled plan?), but I'm trying to educate myself in the meantime.

Thanks very much for your imput!

Do you know if the company can use their own accountant to provide an opinion, or does the IQPA need to be independant in the sense that they do no other work for the company?

[Bird]

As a result, we used a low cost provider (it's a bundled plan).

That explains a lot. (Not being condescending; I understand.)

Do you know if the company can use their own accountant to provide an opinion, or does the IQPA need to be independant in the sense that they do no other work for the company?

I believe it's ok. I have only a tiny handful of over 100 plans but at least one uses the company accountant so I have to assume it's ok.

[Guest CFP in Philly]

Thanks again for the input!

[K2retire]

Although I am currently working for a low cost bundled service provider, and agree that "you get what you pay for" I would add that the statement also applies to using a financial planner without spending the money to consult an attorney or accountant before signing legal documents.

Definitely start by verifying the participant count on the 5500 in question. Counting the true number of individuals who have met the plan's eligibility requirements and passed an entry date gives you a starting point. Add to that number any terminated employees who still have money in the plan. Notice that neither of those steps mentions anything about whether or not the person has made a current election to contribute to the plan. That is not relevant to the government's definition of a "participant."

Whoever prepared the 5500 showing more than 100 participants should have alerted the client to the need for an audit. My guess -- and it is 3rd or 4th hand rumor -- is that the cost will be a mid 4 to low 5 figure sum.

FWIW, this is an issue that we fight all the time with the folks who sell our bundled product. We in the TPA area would prefer to make these details known before someone finds themselves in this position. The sales staff is afraid they might scare someone off and lose a sale.

[Guest Sieve]

Heaven forbid they lose a sale when the only result of making a sale without giving proper info is a client in all sorts of trouble from a compliance standpoint, ehh? :angry: After all, it's just a mere minor detail not worthy of concern -- to the salespeople . . .!!

[K2retire]

I completely agree. Unfortunately, the sales people are employees of our client company -- and the client is always right. Or at least cannot be directly told no.

[Guest CFP in Philly]

My guess -- and it is 3rd or 4th hand rumor -- is that the cost will be a mid 4 to low 5 figure sum.

If that's the case this is a disaster of epic proportions.

I've got calls in to the company and to the provider to verify participants. Not being aware of this issue we deliberately avoided any barriers to entry to make it widely available to employees... so that number is going to include pretty much everyone. My only hope is that it's close enough to 100 for them to escape the need for an audit until we can change the plan to limit eligibility.

I'm ultimately responsible for putting my client in this situation (should have done more homework, although it's hard to anticpate every possible snafu)... but I'm really disgusted with the provider for not alerting me to the issue in advance. Retirement plans is what they do, and they should know about potential problems and help avoid them. And ultimately, it's going to cost them this piece of business and all future business that could have come from me.

[Bird]

Although I am currently working for a low cost bundled service provider, and agree that "you get what you pay for" I would add that the statement also applies to using a financial planner without spending the money to consult an attorney or accountant before signing legal documents.

And some low cost bundled products are actually the best fit for certain plans. The problem I see is that they typically see their role as purely administrative processing, and in a case like this, just a teeny bit of foresight ("consulting") would have at the very least given the client a heads-up. Actually, as you note, whoever prepared the return should have indicated the need for an audit - I'm still curious about those details.

And, unfortunately, consulting with an attorney or accountant is no guarantee of success. FWIW

[Kevin C]

It sounds like you are talking about the plan's first Form 5500 filing. If this was the first filing for the plan, the 80-120 rule does not apply. You have to have filed a return in the prior year to use it. If this is your first filing, 100 participants as of the beginning of the plan year makes you a large plan filer.

If this is the first 5500 filing, what is the initial plan year? If the initial plan year is a short plan year of 7 or fewer months, you can delay the audit until the second year. The audit for the second filing covers the entire time period.

[Guest CFP in Philly]

It sounds like you are talking about the plan's first Form 5500 filing. If this was the first filing for the plan, the 80-120 rule does not apply. You have to have filed a return in the prior year to use it. If this is your first filing, 100 participants as of the beginning of the plan year makes you a large plan filer.

If this is the first 5500 filing, what is the initial plan year? If the initial plan year is a short plan year of 7 or fewer months, you can delay the audit until the second year. The audit for the second filing covers the entire time period.

The plan started in 2006, but the company was under 100 employees at the time. So, it's not the first 5500, but it is the first time this issue has come up. Complicating matters is the fact that this is a staffing company. I just heard from them, and currently they have 19 full-time employees and 80 "contractors". Unfortunately, all of those contractors are eligible to use the plan (that was the owner's main goal from the start - to have a plan available for contract empoyees that wanted it).

Because it's a staffing company, there is constant turnover in employees. So while there are currently just under 100, if you add up all the contractors who were eligible during the course of the year it would come out to over 100. My fear is that the regulations will count every person who at any time was eligible during the year.

This is a teeny tiny plan, but I'm fearing the rules are stacked against this kind of business to some extent and what is a small plan will end up being treated as a larger plan because of the flow of employees. Which is something I would have loved to have been warned about by the 401(k) provider! :angry:

[WDIK]

You have stated several times that the participant count is "over 100."

From another statement you made, it appears that the participant count for the 2006 filing was under 100.

Based on these statements, the following questions may be important.

Was the total participant count on the 2007 filing over 120?

Was an application made for an extension of time (Form 5558) for the 2007 filing?

[Guest CFP in Philly]

You have stated several times that the participant count is "over 100."

From another statement you made, it appears that the participant count for the 2006 filing was under 100.

Based on these statements, the following questions may be important.

Was the total participant count on the 2007 filing over 120?

Was an application made for an extension of time (Form 5558) for the 2007 filing?

Sorry for the lack of clarity. The notice from the DOD indicated that the company needed to file a "Accountant's Opinion", which I have been told indicates that the plan has over 100 participants. I have asked the company to let me know how many employees - permanent and contracted - they had on their payroll during 2007, but I haven't heard that answer yet.

Given that their current active payroll is 99 people, it wouldn't surprise me if they crossed the 120 mark last year when all contractors are added up, but I'm not sure yet.

I don't believe an application for extension was filed. The letter from the DOD - dated 8/22/08 - was the first indication to the company or myself that this issue existed.

[Kevin C]

The participant count we need is the beginning of year count reported on line 6 of the 2007 5500.

Did the TPA prepare a Schedule H or a Schedule I for the 2007 5500?

[Peter Gulia]

CFP in Philly, a few points you might want to think about (especially if you were involved concerning the creation of the plan or the selection of the service provider):

(1) Before you say too much or the wrong thing about how the plan fiduciaries (likely the staffing business and its owners and executives) might handle their problem, consider presenting suggestions that don’t invite your client to think that the problem is your fault.

(2) After thinking about point (1), consider that some rules about the number of participants count at the beginning of the plan year.

(3) There are conditions other than those about the numbers of participants that could require a public accountant’s examination.

(4) A competent practitioner might find ways to redo, truthfully, the Form 5500 so that the Labor department asks nothing further and closes the file.

(5) After the mess is done with, change the plan. A staffing business should use custom-designed documents. In my experience, a staffing business’ plan needs custom definitions about who is or isn’t an employee, who is or isn’t eligible, and who has or hasn’t ended his or her employment. Creative definitions can help a staffing agency meet its business purposes. A good practitioner can persuade the Internal Revenue Service to issue a clean determination on provisions that go beyond what’s customary in others’ documents.

Because this is open comment in a public bulletin board, it’s not tax or legal advice.

[Guest CFP in Philly]

The participant count we need is the beginning of year count reported on line 6 of the 2007 5500.

Did the TPA prepare a Schedule H or a Schedule I for the 2007 5500?

I'm not sure about the beginning of the year count, but my GUESS is that it would not be above 100. I do not have a copy of the 5500 yet... I'm planning on asking the provider for that but they have not gotten back to me yet. Par for the course for these clowns I'm afraid.

In the letter from the DOD it states:

"On your schedule H, Part IV, line 4i, you indicated that the plan had assets held for investment. However, you failed to complete and attach a schedule of assets held for invesmtent.

Please complete and submit a schedule of assets held for investment in the format prescribed..."

There is no reference to a Schedule I in the letter, so I'll have to check on that.

PS-

Just another word of thank for the assistance I've been receiving from this board. Unfortunately, sometimes you have to learn by doing, and sometimes that includes mistakes. In the time since this issue arose yesterday, my knowledge on the subject has increased dramatically. I stumbled onto this board as I was beginning to research the issue, and the guidance received here has been invaluable. Sometimes nothing beats being able to converse with people who know a subject.

[Guest CFP in Philly]

CFP in Philly, a few points you might want to think about (especially if you were involved concerning the creation of the plan or the selection of the service provider):

(1) Before you say too much or the wrong thing about how the plan fiduciaries (likely the staffing business and its owners and executives) might handle their problem, consider presenting suggestions that don’t invite your client to think that the problem is your fault.

(2) After thinking about point (1), consider that some rules about the number of participants count at the beginning of the plan year.

(3) There are conditions other than those about the numbers of participants that could require a public accountant’s examination.

(4) A competent practitioner might find ways to redo, truthfully, the Form 5500 so that the Labor department asks nothing further and closes the file.

(5) After the mess is done with, change the plan. A staffing business should use custom-designed documents. In my experience, a staffing business’ plan needs custom definitions about who is or isn’t an employee, who is or isn’t eligible, and who has or hasn’t ended his or her employment. Creative definitions can help a staffing agency meet its business purposes. A good practitioner can persuade the Internal Revenue Service to issue a clean determination on provisions that go beyond what’s customary in others’ documents.

Because this is open comment in a public bulletin board, it’s not tax or legal advice.

Great stuff... thanks.

[Kevin C]

Schedule H is for large plans. Schedule I is for small plans. They would not have done both for the same filing.

When you get a copy of the 2007 5500, it would be helpful if you would also tell us how item 3 of the Schedule H was filled out. That item addresses the audit report.

[Guest CFP in Philly]

The news is not good... I called the provider again and got through to someone who told me the plan had 129 employees at the end of 2006, so it did indeed qualify as a large plan. It would have been nice if they could have called the issue to my or the client's attention at that point (or better yet warned us about it when they sold us the damn plan).

They're emailing me copies of the 5500s, so I should have them soon.

[Guest CFP in Philly]

When you get a copy of the 2007 5500, it would be helpful if you would also tell us how item 3 of the Schedule H was filled out. That item addresses the audit report.

In item 3 part a, box (3) was checked, indicating "disclaimer". Part b ("Did the accountant perform a limited scope audit...") was answered "yes".

Basically, the provider forwarded a completed form to the client that indicated an audit was done, without even raising the issue of an audit with the client.

[GMK]

Lots of good information and comments here. BenefitsLink boards are great.

Since the audit is likely, I add that I agree with Bird (post #4) that doing other work for the company does not prevent the company's accountant from doing the plan audit. It's up to the company to decide whether to shop for a good price (knowing you get what you pay for), but in any case, they might do well to find out in advance what the auditor will charge.

I also agree with Bird (post #10) that it is a little strange that the audit was not mentioned at all when the 5500 was prepared, but it's also not that unusual. I may be mistaken, but whoever OKed the 5500 for the company should have seen line 3 on schedule H. IMHO, 5500's are one of the things that plan sponsors should review thoroughly before approving them.

Good luck.

[Guest CFP in Philly]

I also agree with Bird (post #10) that it is a little strange that the audit was not mentioned at all when the 5500 was prepared, but it's also not that unusual. I may be mistaken, but whoever OKed the 5500 for the company should have seen line 3 on schedule H. IMHO, 5500's are one of the things that plan sponsors should review thoroughly before approving them.

Good luck.

Another lesson learned, and something I will address with clients going forward.

The 5500 was submitted unsigned, which I think is further evidence that the client did not pay enough attention to it prior to submission.

There's blame to go around in this mess. Ultimately though, I feel a personal responsibility to my client for the whole situation. The best I can say on that count is that it's not a mistake I'll make again.

[Kevin C]

Before you go forward with the audit, you should try to verify the participant count at the beginning of the 2007 year. That is not necessarily the same count as it was at the end of the 2006 year.

Most plans have a deemed distribution provision that applies to terminated participants with no vested benefits. If this one does, then anyone who terminated during 2006 with a zero balance is no longer a participant at the beginning of the 2007 year. You might get lucky and find out that the TPA's participant count is not accurate. There may also be terminated employees that did not have a termination date reported to the TPA

You did not mention the Schedule H item 3 having an auditor's name listed. If it was blank, their 5500 software should have given them an error message when they printed the form.

[Guest CFP in Philly]

Before you go forward with the audit, you should try to verify the participant count at the beginning of the 2007 year. That is not necessarily the same count as it was at the end of the 2006 year.

Most plans have a deemed distribution provision that applies to terminated participants with no vested benefits. If this one does, then anyone who terminated during 2006 with a zero balance is no longer a participant at the beginning of the 2007 year. You might get lucky and find out that the TPA's participant count is not accurate. There may also be terminated employees that did not have a termination date reported to the TPA

You did not mention the Schedule H item 3 having an auditor's name listed. If it was blank, their 5500 software should have given them an error message when they printed the form.

Good advice Kevin, and actually once I got in touch with the TPA they recommended we check the participant numbers. We're only off by 9, and the workforce is always in flux, so there is a chance in that regard.

There is no auditor's name listed on the 5500, but if that generated an error they didn't bring it to our attention.

[Guest Sieve]

Good point, Kevin. But, of course, just as term'ed 0% participants are dropped at the beginning of the next year, so will those new participants be added as they've become eligible to defer into the plan. Beginning of year cuts both ways, usually the bad way.

[Kevin C]

Yes, but those new participants at the beginning of the year should already be included in the count. I'm used to valuation systems that determine terminated status based on the termination date. If someone drops off the payroll without getting a termination date in the system, they usually end up still being treated as active.

[Guest CFP in Philly]

Good point, Kevin. But, of course, just as term'ed 0% participants are dropped at the beginning of the next year, so will those new participants be added as they've become eligible to defer into the plan. Beginning of year cuts both ways, usually the bad way.

Since there were essentially no eligibility requirements built into the plan (much to my current regret), I'm thinking there won't be an issue of new participants becoming eligible at the start of the year.

[Guest CFP in Philly]

UPDATE: I reviewed the employee census, and as it happens no one was taking into account people who had left the company. Being that it's a staffing company, there were quite a few of those. The bottom line is, the plan easily qualifies as small, and there is no need for an audit.

Crisis averted, and lesson learned.

I'd like to offer my thanks once again for all the guidance I received from this group while dealing with the problem. I've come away much wiser!

[Guest Sieve]

Next time, Philly, come & visit before the stuff hits the fan (if possible--which it often isn't) . . .

[Guest CFP in Philly]

Next time, Philly, come & visit before the stuff hits the fan (if possible--which it often isn't) . . .

Good advice!

I think I'll try to keep tabs on the board from now on for that reason.