File? yes or no poll question

[WCC]

I have been in a debate with a TPA firm over whether or not a Form 5500 should be filed in the following scenario. They are telling me a filing is not required. I asked them to show me documentation as to why not and their answer is that it is "industry standard" not to file. I would like to ask the Benefitslink experts if this really is "industry standard". Their argument is no assets therefore no filing since they choose to file on a cash basis. The EOB has an example almost identical to this which says to file. I called the Office of Chief Accountant they say file and they referenced page 2 of the 5500 instructions.

Situation:

Traditional 401k plan was effective December 1, 2016. Plan year ending December 31, 2016. Document was signed and the first payroll withholding happened on December 31, 2016. Deposit of the funds was made first week in January 2017. 

File Form 5500 for 2016? Yes or No? If you respond with "no" will you please share documentation as to why? Is it industry standard not to file with $0 assets when you have participants and withholding? We are not changing the effective date of the plan to 2017, deferrals were clearly withheld in 2016 and there were participants on December 1, 2016.

Thank you

[My 2 cents]

Is it a short (12/1/16-12/31/16) plan year or is the first plan year 12/1/16 - 11/30/17?

If it is a short plan year, wouldn't you file a 5500 and show no assets at the beginning of the year and (cash basis?) nothing at the end?  If it is for a 12-month plan year, there will be assets, so presumably the first plan year is one month long.

Wouldn't you have to report on the number of participants at the end of the year (anyone who had amounts withheld on 12/31/16 would be a participant at the end of the short year, right?).

I don't think that there is an industry standard kind of common law applied in the absence of relevant instructions.  What do the instructions to the 5500 say?

When was the plan adopted - before or after 12/1/16?  If in place well before 12/31, why did it take until then to get the payroll withholding started?

[WCC]

Short plan year. I edited my OP  to make that clear, thanks for the clarification. 

It was adopted early December and it took them a pay period to get the deferral elections processed. 

5500 instructions say the following. 

All pension benefit plans covered by ERISA must file an annual return/report except as provided in this section. The return/ report must be filed whether or not the plan is “tax-qualified,” benefits no longer accrue, contributions were not made this plan year, or contributions are no longer made.

[hr for me]

yes

[Mike Preston]

Yes.

[david rigby]

Yes.

[Soundbc1]

Yes

[K2]

yes

[Belgarath]

Yes.

[Peter Gulia]

Beyond the reasons described above (and without saying whether a filing is required), the plan’s administrator/employer might want its lawyer’s advice about consistency between and among tax returns, and about statute-of-limitations and statute-of-repose defenses.

 

Has the employer filed Form W-2 wage-and-tax statements for 2016?  Did those statements report elective-deferral contributions?

 

Has the employer filed Form 941 for 2016’s last quarter?  Did it show differences between Social Security or Medicare wages and Federal income tax wages?

 

Will the employer organization’s tax return (on Form 1120, 1120-S, 1065, or something else) claim a deduction for the amounts not paid as wages as contributions to a retirement plan?

 

Even if the retirement plan’s trust didn’t receive money in 2016, could it help to show the plan existed?

 

Could filing a Form 5500 report and return on 2016 help get a statute-of-limitations defense – under ERISA, the Internal Revenue Code, or both – that otherwise might not apply?

 

Would filing a Form 5500 report and return harm the plan’s administrator or the employer?

[Bird]

Yes

[RatherBeGolfing]

YES.

 

[NJ Mike]

Yes

[ESOP Guy]

It has been a while since I had a 1st year plan re audit rules.

But unless there is a cost of an audit at stake here what is the upside of not filing?

The cost of a 5500 tends to be too small to risk getting called out for a late filing penalty. 

So

Yes

[BG5150]

What happens next year (2017) when you file for the first time?  You'll indicate a first return.  Yet the plan establishment date will be in 2016.

Expect a letter.  Then prepare a defense as to why you didn't file.  The prepare for the DFVCP.

[Bill Presson]

I vote yes. And I vote to find another TPA firm.

[RatherBeGolfing]

1 minute ago, Bill Presson said:

And I vote to find another TPA firm.

I'll second this

[Kevin C]

23 minutes ago, Bill Presson said:

I vote yes. And I vote to find another TPA firm.

I agree with both.

[WCC]

thank you all for the responses.

[My 2 cents]

1 hour ago, ESOP Guy said:

It has been a while since I had a 1st year plan re audit rules.

But unless there is a cost of an audit at stake here what is the upside of not filing?

The cost of a 5500 tends to be too small to risk getting called out for a late filing penalty. 

So

Yes

It is my recollection that one can be excused from providing an accountant's report for a short plan year.  Is there anything for a first plan year?

I was presuming that the plan would not have to deal with an accountant's report for the December 2016 plan year in any event.  So filing a Form 5500 would not be the same kind of effort it would normally be.

[Belgarath]

Agree, if the short plan year is due to the establishment of the plan, and is seven or fewer months, then no audit required.

But of course the 5500 still needs to be filed. No exception for that.

[CuseFan]

unless the industry standard is "laziness"......you absolutely have to file....and from the quality answers above, not filing is clearly not the industry standard. 

[Mike Preston]

It is not that an audit for the 1 month plan year isn't required (it is).  Instead, the audit requirement is allowed to be met by having the auditor's report for the subsequent plan year expanded to include the short period.

[John Feldt ERPA CPC QPA]

Yes.

From the responses above, perhaps the industry standard is to file and their perception of the industry standard is askew.