Abandoned Large Plan Filer

[Below Ground]

We have been servicing a rather large plan for many years.  The business went belly up and we terminated the plan.  We even got everyone paid out.  Problem is the 5500, which requires an Accountant's Opinion.  We did the Draft 5500 in March and sent to the CPA who did it in prior years, but they said "no thanks".  They are owed a great deal of money, and will not do any more work until the account is paid up.  We advised the Client of the problem at that time and have been waiting, with intermittent contact, on the need to get us the Opinion to allow for the 2022 filing.  (There will be another 2023 Filing due which will also need an opinion.) So, as you can tell, we are at an impasse.  While our service obligation as defined by service agreement has been completed, we don't want the client to get slammed with late filing penalties.  Thus far, in addition to other contacts, we have sent an email detailing the penalties and availability of DFVCP, given the impending 10/15 deadline.  I have even sent Facebook messages to the profile of the business owner!  I am trying to get an address for a certified mailing, but am not faring well on that.  Any suggestions?

[Lou S.]

Certified mailing to the the place where the owners and/or officer 1099-R was mailed or will be mailed? Assuming at least one officer was a participant in the plan you should probably be able to track down that address.

Sounds like you've done what you can. Document it to the client as best you can and save the paper trail.

Just thinking out loud, if the company went "belly up" who would the IRS go after for the penalty? And can the DOL go after a "responsible party" if the company has no assets should the DOL decide to impose penalties?

 

[Peter Gulia]

Before paying final distributions to the plan’s participants and beneficiaries, did the plan’s administrator set a reserve for the plan’s administration expenses, including paying your fees and other professionals’ fees?

If there is enough left in such a reserve, the plan’s administrator might pay an independent qualified public accountant’s fee from the reserve.

If no Form 5500 report is filed or an incomplete report (lacking an IQPA’s report on the plan’s financial statements) is filed, expect the Labor department to pursue not only the plan-administrator business organization but also each human Labor might assert had any ability to act for the plan’s administrator.

[Bill Presson]

If you've been paid for 2022 AND if the 2023 5500 will be for a period of less than 7 months, can't you file the 2022 5500 and indicate the audit will be on the next 5500? Doesn't actually solve the problem but kicks it down the road a bit.

You'll still need to get someone to sign.

[Below Ground]

3 hours ago, Bill Presson said:

If you've been paid for 2022 AND if the 2023 5500 will be for a period of less than 7 months, can't you file the 2022 5500 and indicate the audit will be on the next 5500? Doesn't actually solve the problem but kicks it down the road a bit.

You'll still need to get someone to sign.

I did not know we could do this!  So we can file the 5500 without the Opinion saying it will be on the next (final) filing?  That filing will be for 1/1/2023 to 5/15/2023, which is the actual liquidation date.

Without getting into details about the closing of the firm, we understand that there are several lawsuits and investigations pending.  Sounds messy and we have nothing to do with those issues, so we are steering clear there.

We were paid since we knew they were closing, as did the accountant, but we demanded payment before taking any action so we got paid.  The accountant also knew what was happening, especially since the amount due is for several years.  Why they didn't demand payment earlier is beyond me.

Luckily, I was finally able to get the owner's home address.  It took some kicking and screaming but a certified letter is going today deatiling item needed, potential penalties, and use of DFVCP.

Thanks Mr. Presson.  I have found your input very helpful over many, many years.

[Luke Bailey]

On 9/28/2023 at 4:20 PM, Lou S. said:

Just thinking out loud, if the company went "belly up" who would the IRS go after for the penalty? And can the DOL go after a "responsible party" if the company has no assets should the DOL decide to impose penalties?

 

On 9/28/2023 at 4:30 PM, Peter Gulia said:

If no Form 5500 report is filed or an incomplete report (lacking an IQPA’s report on the plan’s financial statements) is filed, expect the Labor department to pursue not only the plan-administrator business organization but also each human Labor might assert had any ability to act for the plan’s administrator.

I had a similar situation years ago. I think that unless they have grounds to pierce the corporate veil under state law piercing principles, the penalties apply to the corporation, not the shareholders. That was my analysis and experience was consistent with analysis.

[Peter Gulia]

Whatever the law might be, in my practical experience the Labor department can be aggressive about pursuing a former shareholder, partner, member, director, manager, officer, or even nonofficer employee if any relation regarding the plan, however remote, might be argued to have made such a human a fiduciary who arguably could have done something, or even a cofiduciary with knowledge of another fiduciary’s breach.

The pursuit might not be about the penalty for a failure to file an annual report. Rather, the Labor department might pursue one or more fiduciary breaches and civil penalties on those breaches.

If one doesn’t persuade EBSA to stop its pursuit, winning a Labor department proceeding can take on substantial attorneys’ fees and other expenses.

That observed, EBSA might be less vigorous in a fiduciary-breach pursuit if participants and beneficiaries have been paid.

Below Ground, before you electronically process a Form 5500 report, consider making sure someone with authority to act for the plan’s administrator approved the report, including especially anything that involves a choice about how to report (such as electing to delay an independent qualified public accountant’s report), and instructed you to submit the approved report. You’ll want evidence to prove that you never had, and never exercised, any discretion.

[Luke Bailey]

3 hours ago, Peter Gulia said:

The pursuit might not be about the penalty for a failure to file an annual report. Rather, the Labor department might pursue one or more fiduciary breaches and civil penalties on those breaches.

Right. I don't think that filing the 5500 is a fiduciary act, even though it's a responsibility of the plan administrator. Could be arguable, but the filing is a responsibility to the gov't, not the plan. Don't know of any case on this.

3 hours ago, Peter Gulia said:

EBSA might be less vigorous in a fiduciary-breach pursuit if participants and beneficiaries have been paid.

Yes. The case I was thinking of met this criterion. If money was missing, of course they will try to go after that as fiduciary breach and failure to obtan an IQPA could be looked at by EBSA as part of a coverup, which could provide a path to claiming individual fiduciary liability.

3 hours ago, Peter Gulia said:

Below Ground, before you electronically process a Form 5500 report, consider making sure someone with authority to act for the plan’s administrator approved the report, including especially anything that involves a choice about how to report (such as electing to delay an independent qualified public accountant’s report), and instructed you to submit the approved report. You’ll want evidence to prove that you never had, and never exercised, any discretion.

Amen, amen, amen.

[Below Ground]

Again, my thanks for your comments.  I have since sent the 5500 sans IQPA Report to the Trustee/Plan Administrator to file.  My policy has always been that absent some strong circumstance, signing your 5500 is part of the responsibility to have a plan.  I will take responsibility for my actions, but I also believe that if you are going to have a plan, you really need to have some direct input/insight into the operation.  Signing your plan's 5500 to me is saying yes, I know what is going on with my plan.  I also note that this is reflected in our fees.  If you want me to sign in the past, it cost you extra.  In this case I also wrote a fairly detailed explanation of how and why the IQPA Report was omitted, which is also spelled out in the form's attachment.  Of course, I learned something new with this, which is an added bonus.  Regardless, within the service definition of my written agreement with the client, it is now up to them.  And yes, this is kicking the can down the road, BUT I have spelled out to them that they need to reconcile with the auditor (or get a new one) now, since there is no additional deferment.  Will they do the right thing? We shall see.  Again, thanks!