Filing 5500 without accountant's opinion

[Linda L]

I have a client who filed as a large plan in 2015, however, in 2016 they went bankrupt, all employees were terminated and the business was sold to a liquidation firm. They need to file as a large plan for 2016, but they have told me that they are not engaging a firm to do an audit. Does anyone have suggestions as to how to get the 5500 filed without the accountant's opinion?

[My 2 cents]

Just don't attach an accountant's opinion!

Oh, you mean how to file a 5500 without an accountant's opinion and suffer no adverse consequences!  THAT might not be so easy.

Why not have the plan pay for an audit - I think the expense of preparing an audit for attachment to the 5500 is an allowable plan expense.

[Tom Poje]

well, I guess for accountants opinion attachment you could attach a note indicating company is bankrupt, sold to liquidation firm, we tried to get one but there is no company that exists now to pay for an audit. . years ago (first year of required 403b filing we attached a note that indicating plan is having independent audit, it is first year for the 403b filing under the new rules, etc. the only thing that happened was the DOL asked for the attachment to be filed as soon as possible.

If the plan has more than 100 participants but less than 100 with account balances then you could also indicate if the future rules are passed an audit wouldn't be needed.

[Linda L]

All of the assets have been distributed out of the plan, so they can't pull the expense from the plan assets. I will have to go with the "note" option. Thanks to both of you!

[Bill Presson]

37 minutes ago, Linda L said:

All of the assets have been distributed out of the plan, so they can't pull the expense from the plan assets. I will have to go with the "note" option. Thanks to both of you!

Be prepared for push back from the DOL. I don't think they are just going to accept it.

[ESOP Guy]

What I can tell you is the note gets you past the computer edit checks.  If you say the plan is large enough for a report to be attached and there is no pdf attached the computer rejects the filing.  However, since a computer isn't smart enough to know the difference between a note and a report it simply accepts any pdf attached. 

We have filed with a note when the report wasn't ready on time and then filed an amended form when the report was ready.  It so far has worked even if it is playing with fire. 

[BG5150]

The DoL is getting better at checking those "note" attachments.  Be prepared for a letter saying the revised form and audit needs to be filed in 30-45 days (from the date of the letter)

[RatherBeGolfing]

While I have heard of individual cases where the DOL has accepted that no audit will be done, it is very rare, and it takes a lot of negotiation.  They are not going to accept this at face value, nor should they.  

A local auditor I know has a plan where the sponsor is no longer in business and the principals are in jail for fraud.  Last I time I spoke to the CPA handling the case the DOL is still expecting an audit to be done...  

[Peter Gulia]

My experiences advising those who administer troubled plans are like BG5150’s observation.  A few years ago, submitting a .pdf in the slot for an independent qualified public accountant’s report got a helpful lag.  In the past two years, the file-or-else letter comes noticeably quicker than before.

 

Don’t expect the Labor department to excuse an audit with no more explanation than that the plan trust lacks money to pay the CPA firm’s fee.

 

If your client is or includes a fiduciary who decided that the plan’s trust would pay or deliver final distributions without setting aside a reserve for plan-administration expenses, consider whether each fiduciary wants his, her, or its lawyer’s advice about whether so deciding breached the fiduciary’s responsibility, and whether the fiduciary might be liable to restore the plan’s assets as needed to meet the plan’s expenses.

 

If you are a service provider that would draft a Form 5500 report on 2016, consider whether the plan paid your fees or what advance retainer you might require before you commit to a service.

[Lou S.]

6 hours ago, Bill Presson said:

Be prepared for push back from the DOL. I don't think they are just going to accept it.

Maybe they can make a claim in Bankruptcy Court against the Plan Administrator (who is probably the bankrupt sponsor) to get the penalties paid.

Given their stance on Orphan Plan filings I think they would prefer a final return with no Independent Audit to no Final Return at all which appears to be the alternative in this case.

But sure they can push back. I'd refer them to the bankrupt sponsor should they push hard.