5500 filing - cash vs accrual

[Jakyasar]

Hi

Looking over for possible takeover dc plans.

They have been filed on a cash basis in the past.

I neither like nor believe in cash basis filings as my reports must match my filings, old habits.

As far as I know, consistentcy is crucial when it comes to the filings.

Is there anyway to switch from cash to accrual method and if possible, how can it be accomplished?

If anyone has any experience, would appreciate any comments/suggestions.

Thank you 

[Bill Presson]

11 hours ago, Jakyasar said:

Hi

Looking over for possible takeover dc plans.

They have been filed on a cash basis in the past.

I neither like nor believe in cash basis filings as my reports must match my filings, old habits.

As far as I know, consistentcy is crucial when it comes to the filings.

Is there anyway to switch from cash to accrual method and if possible, how can it be accomplished?

If anyone has any experience, would appreciate any comments/suggestions.

Thank you 

Just change with the next filing. Document the change in your notes and with the client (like in a cover letter) along with the reasons why.  I like these guy's summary of the reasons: 

https://www.retirementplanners.com/post/the-right-way-to-file-the-form-5500

I've seen this change done (and vice versa) once for plans and never heard of any issues. I don't think you will either.

[Jakyasar]

Thanks Bill

The article nailed it, perfect.

My concern is how to adjust the assets. BOY assets would be cash and EOY would be accrual. The contributions would cover 2 years, is that an acceptable approach?

[Bill Presson]

18 hours ago, Jakyasar said:

Thanks Bill

The article nailed it, perfect.

My concern is how to adjust the assets. BOY assets would be cash and EOY would be accrual. The contributions would cover 2 years, is that an acceptable approach?

Correct.

[Bri]

I have one plan we took over with cash basis accounting.  One thing that stuck out to me is the "number of participants with account balances" question.  Since on a cash basis, that new person with only a first safe harbor amount "on its way in January" doesn't actually factor in to the count on 12/31.  Which is at least weird, since safe harbor plans usually match up "number of participants" with "number of balances".

[Scooby]

Why wouldn’t the new safe harbor ppt be counted at 12/31 with an account balance? The ppt certainly has a legal right as of 12/31 to the contribution for that year despite the fact that the contribution is a receivable.   The head counts should not depend on whether Schedule H or Schedule I are completed on a cash or accrual basis.  

[BG5150]

Cash basis plans, I only count the number of accounts on the custodian's trust report.

[Scooby]

Cash balance plans are defined benefit plans; therefore, line 6g (number with account balances) is not applicable.   That being said, many custodian or trustee reports are prepared on a cash or modified cash basis and generally do not reflect contribution receivables.   
 

Furthermore, the Form 5500 instructions states “the number entered on line 6g should be the number of participants counted on line 6f who have made a contribution, or for whom a contribution has been made, to the plan for this plan year or any prior plan year. “. Even though a contribution for a plan year will not be actually deposited  until the next plan year, it is nevertheless a contribution for the current plan year and should be treated as part of the end of year account balance for online 6g.  

[BG5150]

Scooby, I meant CASH BASIS plans.

I'll edit my post...

[Bob the Swimmer]

Nobody has mentioned IRS Change in Accounting Method Form 3115, so it may not apply here, but I seem to remember that it did many years ago. Just a thought without major research.

[Scooby]

BG5150, thanks for the clarification.  
 

Line 6g notwithstanding, hopefully folks are counting ppts with a $0 cash basis balance but who did receive a contribution that may be received in the next plan year as a participant at the end the plan year and are including those ppts in all of the required notices and disclosure requirements.  

[BG5150]

Participants always get the required notices.  To me, it has nothing to do with balances.

Except Safe Harbor and SPDs.  If they aren't contributing, they don't get one.

[BG5150]

Just now, BG5150 said:

Except Safe Harbor and SPDs.  If they aren't contributing, they don't get one.

[R. Butler]

Since the DOL will now provide that whether or not IQPA annual audit is required will be based on the number of participants with account balances, this becomes a more relevant question.  Is there a consensus about whether plan sponsors who file the 5500 using the cash basis also determine the number of participants with an account balance on a cash basis?

Thanks for any guidance.