Independent auditor report first year of plan

[thepensionmaven]

We have a client that has purchased the assets of another company with a chain of retail stores.  The purchasee maintained a 401k.  The new owner established a new 401k  as sponsor, with eligibility waived as of the effective date for those hired prior to effective date of new plan.

Technically, there are over 100 participants as of the first day of the initial plan year.  An IAR would follow in year#2 as per question on Form 5500.

According to instructions form 5500, the initial plan year would show 0 participants at beginning of the initial year and, of course, initial year would be marked.

CPA seems to think show actual # participants who would be eligible to enter plan 1/1.  Would’t this create a warning with EFTPS and a letter or notice be generated from IRS?

Suggestions?

[austin3515]

I think on 1/1 you have participants, so not sure about that-what do the instructions say to provide that interpretation? Also, you only get to defer the report if the first plan year is 7 months or less. Sounds like your plan year is a full 12 months?

The effective date of the Plan would be why EFAST (not EFTPS) would not bat an eyelash.  New plans are set up "all the time" and its not unheard of to have a new plan with more than 100 participants.  Transactions like what you have described happen all across the country many many times a year, so there is safety in numbers.

 

Again, not sure what the instructions said to give you the impression you have, but for example, if there was a pay-date on 1/1 of that year, wouldn't people have been eligible to contribute (the answer is "yes")?

[thepensionmaven]

I filed 5500-SF a few years ago, plan was effective 1/1/14, showed number of participants as of 1/1/14 as 5, which is the number of participants.

IRS asked for the prior year 5500-SF as we showed a number other than "0" as the number of participants at the beginning of the year.

This took 3 months correspondence to straighten out with IRS.

[austin3515]

(1) 80-120 Participant Rule: If the number of participants reported on line 5 is between 80 and 120, and a Form 5500 annual return/report was filed for the prior plan year, you may elect to complete the return/report in the same category (‘‘large plan’’ or ‘‘small plan’’) as was filed for the prior return/report. Thus, if a Form 5500-SF or a Form 5500 annual return/report was filed for the 2015 plan year as a small plan, including the Schedule I if applicable, and the number entered on line 5 of the 2016 Form 5500 is 120 or less, you may elect to complete the 2016 Form 5500 and schedules in accordance with the instructions for a small plan, including for eligible

If you put zero you are also saying no audit.  That is not the case. The audit is determined by line 5.

Did you perhaps re-use an old plan #?  I can;t think of why your last post would have created a stir.  It just doesnt make a lot of sense.  I literally do that all the time with SF's and never had that problem.

[thepensionmaven]

We filed 2015 as initial plan year, there were over 100 participants as of 1/1/15, although due to the initial set-up of the plan with the investment carrier, enrollments were after 1/1/15.

Form 5500 was filed for the initial plan year as there were over 100 participants during the year.

No IAR for 2015, to follow with 2016.

We have had at least had a dozen or so inquiries from IRS concerning other plans' initial plan year returns showing other than "0" at the beginning of year and there have always been problems. In fact, software creates an edit check error if a number is entered on an initial return.

I spoke with a person at IRS  who told me an initial return should have "0" at the beginning of year.

But we know we can't rely on their answers. 

I infer that you are saying 2015 as the initial return should have greater than "0" as the beginning of year, and amended the return, include an IAR as the plan year was >7 months?