401K Audit Deferred Short Plan Year -Help!

[401Kquestions]

Hello,

I'm new here and was hoping to get some clarification on a question regarding 401K and deferring the Audit. 

From 2016-2017 we had 3 401K plans with common ownership... starting September 2018 we merged all the assets from those 3 prior plans into a new plan with new plan number. 
For the three prior plans the group has always filed a 5500SF... Now that we have merged those assets into an entirely new plan with new plan number on September 2018 our eligibility has climbed we think to more than 100 eligible....My question is since the plan is a new plan starting on 09/2018 -12/2018 can we defer the audit to the next year? 
I keep getting mixed answers on this with some CPA's saying that it isn't a new plan it is an offspring of the 3 prior plans so it wouldn't qualify to defer the audit the following year. 
Any input is appreciated as I keep getting answers saying we can and some saying we can't defer the audit...

Thank you all! 

[justanotheradmin]

Some clarification is needed. 

If you really did have three plans - and started a completely NEW plan, then I don't believe the new plan can't rely on the audit waiver rules that require lookback. It's a new plan. 

If you had three plans, and one of them was updated and absorbed the other two plans the plan left standing would be able to rely in the audit waiver rules that require lookback, because there is a prior year to look back to. 

With a new plan, there is no prior year to look back into. 

 

the 80-120 look back allows the audit to be waived completely if requirements are met. 

The short plan year simply combines the audit with the longer regular length plan year, but the plan is still audited for the short period along with the regular length plan year. 

I'm not which which rule you are trying to use. 

[Mike Preston]

1 hour ago, justanotheradmin said:

Some clarification is needed. 

If you really did have three plans - and started a completely NEW plan, then I don't believe the new plan can't rely on the audit waiver rules that require lookback. It's a new plan. 

.....

Don't can't? Huh?

[Kevin C]

Are you are asking about Schedule H, line 3d(2)? It's not an audit waiver, it just lets you delay attaching the audit until the second year.  The audit will cover both the short year and the full year.  The instructions for Sch H describe when you can do this and include a cite.

Quote

 

Line 3d(2). Check this box if the plan has elected to defer attaching the IQPA’s opinion for the first of two (2) consecutive plan years, one of which is a short plan year of seven (7) months or fewer. The Form 5500 for the first of the two (2) years must be complete and accurate, with all required attachments, except for the IQPA’s report, including an attachment explaining why one of the two (2) plan years is of seven (7) or fewer months duration and stating that the annual report for the immediately following plan year will include a report of an IQPA with respect to the financial statements and accompanying schedules for both of the two (2) plan years. The Form 5500 for the second year must include: (a) financial schedules and statements for both plan years; (b) a report of an IQPA with respect to the financial schedules and statements for each of the two (2) plan years (regardless of the number of participants covered at the beginning of each plan year); and (c) a statement identifying any material differences between the unaudited financial information submitted with the first Form 5500 and the audited financial information submitted with the second Form 5500. See 29 CFR 2520.104-50.

 

[Larry Starr]

17 hours ago, 401Kquestions said:

Hello,

I'm new here and was hoping to get some clarification on a question regarding 401K and deferring the Audit. 

From 2016-2017 we had 3 401K plans with common ownership... starting September 2018 we merged all the assets from those 3 prior plans into a new plan with new plan number. 
For the three prior plans the group has always filed a 5500SF... Now that we have merged those assets into an entirely new plan with new plan number on September 2018 our eligibility has climbed we think to more than 100 eligible....My question is since the plan is a new plan starting on 09/2018 -12/2018 can we defer the audit to the next year? 
I keep getting mixed answers on this with some CPA's saying that it isn't a new plan it is an offspring of the 3 prior plans so it wouldn't qualify to defer the audit the following year. 
Any input is appreciated as I keep getting answers saying we can and some saying we can't defer the audit...

Thank you all! 

And one needs to point out to all the other lurkers on our board that the decision to NOT keep one of the 3 plans and merge the other two into it (and restate if you need to) seems to be the initial questionable decision and I can think of a whole lot of reasons why having a short plan year for a new plan was completely illogical. Maybe there are logical reasons to do what you did and if you wanted to explain why this was done we all gain some insight. 

[401Kquestions]

9 hours ago, Larry Starr said:

And one needs to point out to all the other lurkers on our board that the decision to NOT keep one of the 3 plans and merge the other two into it (and restate if you need to) seems to be the initial questionable decision and I can think of a whole lot of reasons why having a short plan year for a new plan was completely illogical. Maybe there are logical reasons to do what you did and if you wanted to explain why this was done we all gain some insight. 

Hello, 

I'd be happy to explain our logic... The client was paying for three separate plans that cost them $3k/piece annually and the groups eligibility was growing which was inevitably going to trigger not 1 audit but 3! We got them into a nice 401K plan with only an $850 annual cost (thanks empower  ) 

And I appreciate all the help from everyone that contributed in my first post. After doing some research we got our answer - we can defer the audit to next year phew... 

Thanks All! 

[justanotheradmin]

52 minutes ago, 401Kquestions said:

Hello, 

I'd be happy to explain our logic... The client was paying for three separate plans that cost them $3k/piece annually and the groups eligibility was growing which was inevitably going to trigger not 1 audit but 3! We got them into a nice 401K plan with only an $850 annual cost (thanks empower  ) 

And I appreciate all the help from everyone that contributed in my first post. After doing some research we got our answer - we can defer the audit to next year phew... 

Thanks All! 

Glad you got your answer. 

I think what I, and some of the other folks are questioning is why there was a need for a new plan? 

An imperfect analogy:

If I own three trucks, and I want to own one, usually just selling two and holding on to one is simplest. The more cumbersome approach would be to sell all three and then buy a new one. 

If the plans are the trucks - why were all three shut down and a new one started instead of just keeping one open and merging the other two into it? There are a number of great reasons to keep an existing plan going. There are fewer reasons to shutter everything completely and open a brand new one. 

I, (and I think some others) were curious as to what the reasons were to open the new plan. Was there a specific reason? A specific business need that was trying to be met? Was is just that someone didn't understand keeping a plan open and continuing it was an option? 

One plan could have absorbed the other two, and all of the money can be held at Empower. A new plan doesn't need to be set up to move the money to Empower or use Empower as a service provider, so the plans would have realized the cost savings your describe regardless. 

I realize this wasn't your original post question, but if there was a good reason to structure the merger / new plan the way it was done, we'd be curious to know that reason. 

[Larry Starr]

1 hour ago, 401Kquestions said:

Hello, 

I'd be happy to explain our logic... The client was paying for three separate plans that cost them $3k/piece annually and the groups eligibility was growing which was inevitably going to trigger not 1 audit but 3! We got them into a nice 401K plan with only an $850 annual cost (thanks empower  ) 

And I appreciate all the help from everyone that contributed in my first post. After doing some research we got our answer - we can defer the audit to next year phew... 

Thanks All! 

Ah, that explains everything. Justanotheradmin covered the issue; you didn't need to have a fourth plan and the best thing to do would have been to merge the three plans into one of the existing plans (but actually, there is an even better solution as noted below).  It appears you still don't grasp the issue, so no sense beating a dead horse. Empower is worth every penny the client pays.....

And, if you had a competent consulting firm involved, you would realize that you are better off with TWO plans (that can be identical) that splits the population of the employees so you are not going to need any audit, but now your $850 cheapie will cost the client maybe $10k for an audit. But at least it will be put off for a year. Great deal.