Schedule C

[52626]

Large Plan

The Investment Manager is paid by the Employer NOT the Plan. The Investment Manager was paid over $5,000. This is an RIA so NO revenue sharing is taken by the investment manager.

the auditors say the Investment Manager must be shown on the Schedule C. I say no way. They do not receive any direct or indirect comp from the plan and are not required to be reported on the schedule C.

Thoughts??

Thanks

[My 2 cents]

Well, the Schedule C does say "...to report information required for each person who received, directly or indirectly, $5,000 or more in total compensation...in connection with services rendered to the plan or the person's position with the plan during the plan year." I can see how the auditors can reach the conclusion that the investment manager must be reported on the Schedule C, since the instruction on the form does not restrict itself to compensation paid from the plan. However, it is my understanding that not reporting any expenses not paid, directly or indirectly, from the plan is a fairly common practice.

[Andy the Actuary]

1. No one goes to pension prison on this one.

2. As a propeller spinner, I always ask the auditor to send me a mark up up what they want to see changed. So long as nonmaterial, I accept their changes because frankly Scarlett, I don't . . . and this is not a pot worth throwing your chips into. Now if there's some problem later, the auditor can sort it out. In nearly 40 years, there's never been a problem.

[Peter Gulia]

Without disagreeing with My 2 cents’ and Andy the Actuary’s observations, a few further thoughts:

If the plan’s administrator accedes to the independent qualified public accountant’s suggestion, there might be an awkwardness about what the administrator reports on Schedule C.

Under the Schedule C instructions, “indirect compensation” is “[c]ompensation received from sources other than directly from the plan or plan sponsor[.]” Yet “direct compensation” is only “[p]ayments made directly by the plan[.]”

If the investment manager’s fee is paid by the plan sponsor, correct responses to Schedule C’s part I line 2 might be:

(d) direct compensation -0-
(e) indirect compensation No
(f) Did indirect compensation include eligible indirect compensation? [blank]
(g) total indirect compensation -0-
(h) formula instead of an amount? No

To the computer, this might look like the service provider had no compensation. One wonders whether the software would display an “are you sure” message: “Do you intend to report as a service provider a person that had no compensation?”

If that happens and the administrator starts thinking about how to “trick the system”, the administrator might reconsider whether to accede to the independent qualified public accountant’s suggestion.

If it reconsiders, the administrator might recall that there is a little off-rule guidance that might support a reporting position. The Schedule C FAQs state (in Q 26), not in an answer but rather in a question as a conclusion EBSA assumes: “Plan administrators are not required to report on Schedule C information with respect to service providers receiving less than $5000 in total compensation (direct and indirect) from the plan.”

For the auditor, there is an easy retreat. The AICPA tells an auditor to “read the other information of which the auditor is aware [such as Form 5500 and its Schedules] in order to identify material inconsistencies[.]” If the plan’s financial statements show no payment to, and no payable due to, the investment manager, those statements would be not inconsistent with the investment manager’s absence from Schedule C. Likewise, there should be no need for a disclosure reconciling differing amounts between the financial statements and the other elements of the Form 5500 report.

[jpod]

Why is all of this analysis and repartee necessary to come to the obvious conclusion: the auditor doesn't know what he/she is talking about.

[Bird]

I say no way.

I agree.

Why is all of this analysis and repartee necessary to come to the obvious conclusion: the auditor doesn't know what he/she is talking about.

Exactly what I was thinking. Absolutely no way is it reportable.

[Bill Presson]

The instructions specifically exclude payments directly from the plan sponsor that are not reimbursed from the plan. The auditor is wrong.

WCP

[Andy the Actuary]

Just an issue of style, I've only pressed auditors when the matters are material -- especially when the client's fees to get it "right" exceed the value of getting it right.

[jpod]

Andy: Point well taken. In this instance, however, I think it is worth advocating in the client's interest, rather than voluntary reporting information to a government agency AND the public at large information that is not required to be reported.

[K2retire]

Perhaps the auditor doesn't understand that the employer and the plan are separate legal entities.

[Andy the Actuary]

As I said, "style." I've never worked with an auditor who had the least bit of interest in sparing the client fees! The auditor will charge for discussion of the appropriateness and the preparer may charge as well. The only benefit the client derives is some assurance that the forms have been prepared strictly according to Hoyle. If the client is not a publicly traded company, they may likely care less.