Mess acquired from prior TPA

[Cynchbeast]

We have a Profit Sharing/401(k) we have taken over from a prior TPA who we understand was doing some shady accounting. Plan is with American funds.

I ran AF reports and compared them to past 5500s, and there are gross discrepancies. For a trust with assets in the range of $300k-$400k, assets on 5500s have been misstated (both over and under) by more than $110,000.

The ending balance on the 2013 report is approx $444,000 when it actually should have been approx $551,000

How should I prepare the 5500 for 2014?

1. Use ending values from 2013 and calculate earnings to get to correct 2014 ending value.
2. Use correct beginning 2014 value, ignoring fact that 2013 report was wrong.
3. Use correct beginning 2014 value, and include an explanation of error as an OTHER attachment to the filing
4. Other ideas?

[hr for me]

Do you know why the discrepancy exists? Other than the fact that the TPA made mistakes and did shady accounting? Is the client able to tell you why they signed off on a 5500 that didn't match their reports?

Are you sure you shouldn't go back and amend the 5500s to be correct? I'd be more tempted to have the clients do so than to ignore it (#2) or do more shady accounting (#1). I'd be mostly like of your choices to do #3 of those 3, but would check into correcting over time. Or at least document what they should have been in case the IRS/DOL comes back and asks so that you have the information needed.

[Cynchbeast]

It also occurred to me that this might be a good case to do an anonymous EPCRS submission to IRS - if eligible for EPCRS. I haven't thoroughly analyzed that yet.

If we amend prior 5500s, I don't know how far back we have to go. As for the client signing off on the 5500s, I have a sneaky suspicion she didn't sign off, that the TPA might have signed for her and that she may not even be aware of the requirement for her to sign.

[K2retire]

Is the discrepancy (at least partially) due to a difference between cash basis and accrual basis accounting?

AF reports can be run on a "trade date" or "payroll data" basis. Check the top of the report to see which one you have and then run the other to see if that takes care of your problem.

[hr for me]

Based on K2retire's theory, can you tell if there were any large distributions near or at the end of the plan year? That could help explain why the discrepancy is so very large (up to 20% of assets) with the cash vs accrual, but that large of a discrepancy seems like would be hard to explain with just timing deposits.