5d(1) and 5d(2) on Form 5500 Question

[Vlad401k]

Let's say we're doing a Form 5500 for 2014 year. If someone terminated on 12/31/2014, are the considered to be participants as of the end of the plan year in section 5d(2) on Form 5500?

Also, if someone is hired on 1/1/2014, are they considered to be participants as of the beginning of the year in section 5d(1)?

If the answer to either of these questions is "yes", then the total number of participants at the end of (let's say 2014) can be different than the total number of participants at the beginning of the following year (in our example, 2015). Is that line of thinking correct?

[Lou S.]

I assume you are talking about folks who met the eligibility and have entered the plan as participants and not just employees and will answer accordingly -

If a participant terminates on 12/31/2014 and does not have a balance I would say they are no longer a participant "as of the end of the Plan year".

If a participant enters the plan on 1/1/14 they are a participant on the first day of the plan year.

Yes it is possible for the 12/31/2014 participant count to be different from the 1/1/2015 participant count due to new entrants.

[GMK]

One simple example: If eligibility is after one year of service with a participation date of the first of the year, then everyone who completes a year of service (and becomes eligible) during 2015 is a participant of January 1, 2015.

[My 2 cents]

One simple example: If eligibility is after one year of service with a participation date of the first of the year, then everyone who completes a year of service (and becomes eligible) during 2015 is a participant of January 1, 2015.

Am I right in assuming that they become participants as of January 1, 2016?

With a 1-year service requirement, doesn't the plan have to have at least semi-annual entry dates?

Let's suppose that a calendar year plan has a 6-month elapsed time requirement for entry (entry date = first day of plan year) and someone was hired on June 15, 2015. That person becomes a participant on January 1, 2016 and is not in the end of 2015 count for the 2015 5500 filing (or for the 2016 PBGC premium, which is based on the last day of the prior year). Does this example help?

[Mike Preston]

GMK's example also works. It is not uncommon to have a single entry date. To satisfy the rules, it is retroactive.

[My 2 cents]

GMK's example also works. It is not uncommon to have a single entry date. To satisfy the rules, it is retroactive.

How is that handled for purposes of IRC Section 430?

[Mike Preston]

Remember that the actuary can adopt, as part of the funding method, a policy to include in the valuation (assuming a BOY val date) those employees that are employed as of the valuation date who will enter the plan before the end of the plan year. Fits like a glove.

[ESOP Guy]

The other interesting question on this topic is crossing the audit threshold. I am doing this from memory but here is my recollection.

If a plan was a small plan in 2015 with 119 employees. Say two people meet the eligibility requirements on 7/26/2016 but the plan has only one entry date of 1/1 these two enters the plan on 1/1/2016. Assume no one left so there is no decrease in the counts. It would seem like for the Form 5500 you ought to have 121 people as of 1/1/2016 listed.

Sal's book has a discussion in it how these two might not count for purposes of needing an audit for 2016.

So you have 121 on the 5500 and no auditors report. That tends to get you an error message.

I had this come up once a few years ago. It is why I no longer like 1/1 retro entry dates any more. That was a pain.

[Mike Preston]

I might have gone with 119 as a BOY count.

[austin3515]

Me too - they did not become participants until July 2016. Until then it was not known if they would be eligible on 1/1. I'd say "they are treated as being eligible on 1/1" but in reality it didn't happen until July 2016.