Participant count for a new plan on 5500 form

[Jakyasar]

First time I have seen the following in my many many years in this business.

I am looking at a 5500 forms prepared by another TPA. It is first filing and for 2020 (calendar plan). 401k/safe harbor/profit sharing plan.

401k feature started late in 2020 - adoption date of the new plan. Not a short plan/sponsor year. Plan effective 1/1/2020.

Safe harbor and/or profit sharing deposited after plan year end.

All participants have been employed more than few years so eligible under 21/1 rule as of 1/1/2020 i.e. entered the plan on 1/1/2020.

On the 5500 forms, participant count on 1/1/2020 is 0 and 12/31/2020 10. All 10 were eligible as of 1/1/2020 - no one entered the plan after that date.

The way I know/done is the participant count on 1/1/2020 is 10 and not 0.

What am I missing here?

Thank you

[Gilmore]

Under the circumstances you describe, we would also use the 10 that satisfied the entry requirements on 1/1/2020 as the beginning count.

[Bill Presson]

56 minutes ago, Gilmore said:

Under the circumstances you describe, we would also use the 10 that satisfied the entry requirements on 1/1/2020 as the beginning count.

Agree with Gilmore and with Jak.

[ESOP Guy]

An old discussion that might help or hurt I remember having.

The question that I had raised was:  what if a person meets eligibility in the middle of the year and the plan says everyone enters retro back to 1/1.   The plan had 119 participants before that person as of 1/1.  Did they need an audit?  Several people took the position of "no". 

 

Not 100% the same but similar.  

[Gilmore]

ESOP, your 2015 question does not fit Jakyasar's original fact pattern, which indicated that the employees became participants on January 1, but your question was interesting, thank you for sharing that.  So Mike and Austin's opinion was that the employee is counted as a participant on the date they actually met the requirement to be a participant and not the retroactive entry date.  Makes sense.  What did you decide?

[ESOP Guy]

3 hours ago, Gilmore said:

ESOP, your 2015 question does not fit Jakyasar's original fact pattern, which indicated that the employees became participants on January 1, but your question was interesting, thank you for sharing that.  So Mike and Austin's opinion was that the employee is counted as a participant on the date they actually met the requirement to be a participant and not the retroactive entry date.  Makes sense.  What did you decide?

If I recall correctly we made the case they did not need an audit.   They were never audited by the DOL so our case was never tested by them.  We convinced the client they had dodged a bullet and worked with them to pay a lot of terms that year to get them well below the audit level    Between the opinions we got here and whatever we saw in Sal's book convinced us they were not participants for 5500 purposes as of 1/1.  

[Jakyasar]

ESOP guy - interesting case. Do you remember where in Sal's book this reference was?

As Gilmore stated, your situation is different than mine but I still would be interested as to how they were not participants at BOY when they were retroactively, just curious. I never use retro to beginning of year.

[ESOP Guy]

Sorry, I don't recall....

[Belgarath]

In the 2020 version, it is on page 13A.83.