Contribution Amount to Use on Schedule H

[Below Ground]

We are having difficulties with an accountant on Accountant's Opinion and Schedule H for calendar year 2013 plan year.

Basically, the last payroll date with contributions was 12/20/2013. These deferrals were physically deposited in early January. (Question is not on deposit timing.) These deferral were reported on 2013 W-2 Forms. Obviously, these contributions are reported on the 2013 Schedule H, which we prepare on an accrual basis. That is not the problem.

We have a payroll period the runs from 12/23/2013 to 1/3/2014. These contributions will be reported on 2014 Form W-2. It is this period that we are having trouble with the accountant. Accountant believes that since a portion of this pay period was in 2013, we must include on 2013 Schedule H!

As I recall from ASPPA Exams, ect.. this was long settled as you use the amounts for the year in which Form W-2 records these contribution. In effect, none of this period is reported in 2013. Reporting is in 2014. Does anyone have a cite or reference that I can use for this purpose?

Thanks in advance for assistance!

[Kevin C]

Sounds like the accountant is trying to apply the few weeks rule that will likely be addressed in the plan's section 415 amendment. The amendment or the document if it has been restated, should clearly say if the plan uses that rule or not.

[Tom Poje]

and as a side bar, is the account expecting a portion of any deferrals to be counted on the 2013 ADP test and the remainder on the 2014 test?

Sample document language is as follows. (We never use this option)
Compensation Earned in Limitation Year but Paid in Next Limitation Year. Section 2.5©(2)(E) of the Amendment defines Code §415©(3) Compensation for a Limitation Year to include any amounts earned during that Limitation Year but not paid until the next Limitation Year.

[Below Ground]

Testing was done using Form W-2 amounts. Curiously, this Plan was recently audit by both DOL and IRS. Outside of some deposit timing issues, the audits were clean. Compensation for both allocations and testing using the 414(s) W-2 Definition determined over plan year period (calendar). Plan terms explicitly excluding "Post Year Compensation".

[Below Ground]

I understand the issue of using Post Year Compensation, but I thought (mistakenly?) that there was a Rev. Rul. or something that said when a payroll period cross over a year then you use the year the pay date falls in, subject to Plan terms on Post Year Compensation. The position of this accountant is not related to the Post Year Compensation issue. Instead, she wants to prorate the deferral from that payroll period and divide between the 2 years. She is not claim this to be related to Compensation, but it is "required under accrual accounting"????? I have been looking through old notes and stuff, and can't find what says that you do not do (not required) this proration between years. My problem is that is I use her values, deferral values on Form 5500 will not coordinate with testing or any other aspect of plan operation.

[ESOP Guy]

I understand the issue of using Post Year Compensation, but I thought (mistakenly?) that there was a Rev. Rul. or something that said when a payroll period cross over a year then you use the year the pay date falls in, subject to Plan terms on Post Year Compensation. The position of this accountant is not related to the Post Year Compensation issue. Instead, she wants to prorate the deferral from that payroll period and divide between the 2 years. She is not claim this to be related to Compensation, but it is "required under accrual accounting"????? I have been looking through old notes and stuff, and can't find what says that you do not do (not required) this proration between years. My problem is that is I use her values, deferral values on Form 5500 will not coordinate with testing or any other aspect of plan operation.

I understand the issue of using Post Year Compensation, but I thought (mistakenly?) that there was a Rev. Rul. or something that said when a payroll period cross over a year then you use the year the pay date falls in, subject to Plan terms on Post Year Compensation. The position of this accountant is not related to the Post Year Compensation issue. Instead, she wants to prorate the deferral from that payroll period and divide between the 2 years. She is not claim this to be related to Compensation, but it is "required under accrual accounting"????? I have been looking through old notes and stuff, and can't find what says that you do not do (not required) this proration between years. My problem is that is I use her values, deferral values on Form 5500 will not coordinate with testing or any other aspect of plan operation.

I understand the issue of using Post Year Compensation, but I thought (mistakenly?) that there was a Rev. Rul. or something that said when a payroll period cross over a year then you use the year the pay date falls in, subject to Plan terms on Post Year Compensation. The position of this accountant is not related to the Post Year Compensation issue. Instead, she wants to prorate the deferral from that payroll period and divide between the 2 years. She is not claim this to be related to Compensation, but it is "required under accrual accounting"????? I have been looking through old notes and stuff, and can't find what says that you do not do (not required) this proration between years. My problem is that is I use her values, deferral values on Form 5500 will not coordinate with testing or any other aspect of plan operation.

I don't do this very often but auditors can put a small reconciling sch in their report to explain differences between the 5500 and their audit report. Most people don't like that idea as they think you should resolve the difference. This might be one of those times the 5500 and the auditor report need to be different.

Normally I give the auditor what they want on the 5500 as I figure it isn't that important. But as you say I wouldn't want the tests and 5500 be different. Maybe it is time to agree to disagree.

[Below Ground]

I totally agree ESOP Guy. Normally changes are issues of classification of an asset, or defining income to be mutual fund earnings versus realized and unrealized depreciation. Stuff that I am kind of like "who cares", but this creates a serious problem. Every audit that I have every been involved in during my 30 years always looks to have 5500, testing, allocations, etc... tie together. For a calendar year plan the auditor ALWAYS wants to see values tie into W-2 values (assuming those are values used). What method should be used to divide that payroll into 2013 vs 2014. Can we just cut in half? Look at Hours for the periods? To me this seems to be opening up Pandora's Box in so many stupid meaningless ways. I guess my frustration is showing itself.

[Kevin C]

If the plan doesn't use the few weeks rule (Tom quoted language for it), then the payroll period ending 1/3/2014 is compensation and deferrals for 2014. If the accountant doesn't accept that, I would tell them, sorry, but we won't be changing the valuation.

If the plan does use that rule, then part of that payroll will be 2013 and part of it will be 2014.

[Below Ground]

The Plan is very specific and does NOT include the 2014 payroll date. The accountant keeps saying that under accrual accounting it must be included because part of the period is related to 2013, even though it is all 2014 income for Form W-2. That is not in dispute. Also, we are not going to change our valuation or testing, as that is not being questioned. The accountant agrees that our work on those issues, and data used, is correct. The issue is exclusively what values are reported on Schedule H.

My real concern is that our work, and W-2 Forms, will not tie into values being reported on Form 5500. My experience is that an auditor from the IRS or DOL always wants values to tie into W-2 values. If not, the audit by the IRS/DOL becomes a major headache.

So I am I right that there is nothing that support our desire to have the 5500 values coordinate with the actual operation of the Plan?

[Bird]

The accountant might be trying to apply corporate accrual accounting rules to the plan, incorrectly. I'm guessing that there is some sort of rule that says you should prorate the compensation across two corporate fiscal years. That doesn't apply for plan tax return accounting. I'd stick to my guns and keep showing the definition of comp in the plan that says compensation paid during the plan year. Ask her to ask for some help as no one else in the plan universe has this interpretation.

[Below Ground]

I really wish there was some cite related to this. I did find in the 2011 Draft Audit Guide by the AICPA that Schedule H accounting may have different results than the Financial Statements of the Accountant's Opinion, and some other vague statements. I have also had at least 4 different CPA's say the auditor is total wrong, and this is an item for the "statement of reconciliation for Financial Statements to Form 5500". So no one knows of anything like that? This whole situation is going sour real fast, with the accountant questioning things like was top heavy testing done? (Stuff like that was in a report we issued last April. ADP/ACP in January.) Was it done right? Our position is that the Schedule H should reflect actual plan operation. It appears the account's position is if the Schedule H is not GAAP then it is wrong, and suggesting otherwise is incompetence. Oh well, I know we are doing the job right.

[ESOP Guy]

Maybe you can convince the client that you need to start completing the change of auditor section of the Sch C for 2014.

[austin3515]

^{Bird, you are on the money. When they do the corporate audit, a portion of that pay-period gets accrued as a 2013 payroll expense. Why? Because the service rendered is attributable to 2013.}

^{But the key here is that it is a non-event until the amount is WITHHELD. That's the obvious point for which no reg is needed. If not WITHHELD until 2014, it is a 2014 contribution. It is not due to the Plan until it is WITHHELD (one h or two?).}

[chc93]

I really wish there was some cite related to this. I did find in the 2011 Draft Audit Guide by the AICPA that Schedule H accounting may have different results than the Financial Statements of the Accountant's Opinion, and some other vague statements. I have also had at least 4 different CPA's say the auditor is total wrong, and this is an item for the "statement of reconciliation for Financial Statements to Form 5500". So no one knows of anything like that? This whole situation is going sour real fast, with the accountant questioning things like was top heavy testing done? (Stuff like that was in a report we issued last April. ADP/ACP in January.) Was it done right? Our position is that the Schedule H should reflect actual plan operation. It appears the account's position is if the Schedule H is not GAAP then it is wrong, and suggesting otherwise is incompetence. Oh well, I know we are doing the job right.

i have had a couple of plans that routinely had this "reconciliation to 5500" section in the audit report. No one blinked an eye. FWIW, many years ago, one issue was the late valuation of company stock whereas the plan valuation used last known value (company instructions to do this, I guess auditors agreed); another issue was the accrual of dividends and interest that was determined by the auditors and not reflected in the trust statements which the plan valuation was based on. I don't have current experience with this issue.

[Below Ground]

Trust me, if I could, I would love to refer a different auditor; but that would not be professional, so I will refrain. ESOP Guy, I can only say, "If only". Of course, it appears that this level of ethics (stupidity?) that I hold is not shared across the line. Questioning what we are doing in areas that are not their expertise is their approach. Curiously, they have made themselves look bad with that behavior, when shown what they were saying was just wrong.

Anyway, I totally agree that this is an issue of applying corporate accounting rules to a pension plans 5500 Schedule H. Too bad there is nothing cause that would solve the problem.

My accountant says it is in GAAP. Unfortunately, he hasn't been able to provide anything that sways the client. Oh well...

[Below Ground]

Not disagreeing Austin, but is there anything that proves this is a non-event, and therefore is not recorded on the Schedule H. From what I am gathering, the way I want it done is accepted practice, BUT doing it the accountant's way is not necessarily wrong. It will create the problems I note in earlier posts, but it could be used. I am using that logic in my "roll over and die conclusion". I figure that if I can prove it wrong later, then I will do an amend filing. The alternative is miss the filing date.

[austin3515]

It is wrong because as of 12/31/2013 there is no liability. A participant could, after 12/31 but before pay-day, elect not to defer. Therefore, this does not meet the GAAP definition of a liability.

Compare that with the related payroll expense. That liability is determinable and incurred because the services have been rendered. The money is owed to either the Plan or the Individual. It is not known to whom until pay-day. Therefore, the Plan is not owed any money as of 12/31/2013.

Show this to the CPA and they will at least say "good point."

[Below Ground]

Thanks for the feedback but they will not. They do not care. They have made that clear.

[Below Ground]

I wish to again thank everyone for replies. Unfortunately, logic and good sense have gone out the window. I used every suggestion and not a one cause for an eyelash to twitch. They believe they know everything being this is their first and only plan they have ever audited. They demand that the 5500 be done as they say or they will withhold the Opinion Report! With the deadline looming, capitulation is the only sensible course of action. I did remove my name as preparer, and also in my cover letter stated I totally disagree with method used and can provide no audit support if used. In effect, heavily caveated garbage in garbage out. I hate that with a passion.

[Bill Presson]

They believe they know everything being this is their first and only plan they have ever audited.

I'm sorry, but this line made me chuckle. I don't think you had said that previously.

[Bill Presson]

FWIW, I asked a couple of our auditors (We're a CPA firm that audits close to 200 plans) and they said there isn't any GAAP or specific information on this.

The only thing they found was in the Checkpoint Tools for the audit program that said to be included as a receivable, the amount had to "be withheld from compensation during the plan year, but not remitted to the trust until after the end of the plan year."

Not sure they will accept that, but that's all we could come up with.

[Below Ground]

Yes Bill, that would help. The amounts they used were not used, or applied for 2013. What is "Checkpoint Tools". Thanks as you may have found something that might help!

[Bill Presson]

Yes Bill, that would help. The amounts they used were not used, or applied for 2013. What is "Checkpoint Tools". Thanks as you may have found something that might help!

It's a research product from Thomson Reuters used by a great number of CPA firms.

https://tax.thomsonreuters.com/products/brands/checkpoint/checkpoint-tools/

[Below Ground]

Thanks!