5500 Payables - Daily Valued Plans??

[Guest Charles G]

What is considered a 'Benefit Claims Payable' for a Daily Valued Plan?

For a daily plan, I would think that a payable is not possible.

I am hearing if the TPA receives an authorized distribution request prior to year-end and subsequently process this distribution after year-end then this qualifies as a 'Benefit Claims Payable' for 5500 purposes. On what basis is this true?

Thank you.

[Disco Stu]

As a TPA, I get this from auditors a lot. Most ask for benefits that were approved for payment prior to the end of the year but not actualy liquidated until the new year.

I even had one auditor that used all terminated employees with balances as a payable.

I agree that I doesn't seem appropriate to list payables. Additionally, the two methodologies that I detailed above don't seem an acurate way to come up with a payable anyway.

If you were intent on listing payables, what about corrective distributions (402(g), ADP/ACP, 415)? Those are almost never distributed until the next year. Also an individual's first 70.5 distribution can be delayed until 4/1 of the following year.

I'm sure there are other examples as well. But most qualified plan auditors don't have the background to come up with those sorts of things. I don't mean to throw stones at auditors. I'm just relating my experience that they focus almost entirely on the financial accounting aspects of the plan and give very little (if any) attention to plan qualification issues (ADP, 415, 401(a)(4) etc.) or deductibility of contributions.

Sorry if I got a little off track there. Are there any auditors that utilize these boards? I would be interested to get their side of this issue.

[Guest Becky Ray]

The only time I have seen benefit claims payables in daily valued plans is when a participant's holdings have been liquidated and the proceeds are held in the plan's money market account. The distribution check has been cut, but hasn't cleared the account. The market value of the trust at year end includes the distributed amount, but the participant account has been zeroed out. I can't think of any other situation in which I would show a participant distribution as a payable, especially if the participant's holdings have not been liquidated.

Hope this helps

[Guest Charles G]

Thank you.

I agree with both comments.

Nice to know I am not the only one that have similar issues with auditors.

I could understand reporting a payable when the money is in 'Cash' or 'MMK' within the trust on last day of year. And have reported a couple of payables when this is the case.

Charles

[BeckyMiller]

To stick up for the auditors, realize that in general a distribution that is in process would not be considered a benefit payable to be reported on the Form 5500, Schedule H or on the financial statements. This line item is really there for welfare plans, not retirement plans.

But, the auditors are required to report in the footnotes to the financial statements the following information:

"Amounts allocated to accounts of persons who have elected to withdraw from the plan but have not yet been paid. These amounts should not be reported as a liability on the statement of net assets available for benefits, in the financial statements prepared in conformity with generally accepted accounting principles."

Chapter 3, item 3.28l of the AICPA Audit and Accounting Guide on Audits of Employee Benefit Plans.

So that is why they are asking for that information. There is some uncertainty of what "withdrawing" from the plan means. I would say that it means that they are no longer sharing in earnings. Thus, in a daily plan, you would rarely see this disclosure.

On this point, remember that the financial statements reflect Net Assets Available for benefits. Thus, those amounts that must be refunded because the plan is not permitted to retain these amounts (ADP excesses, 415 excesses (if refundable), 402(g) excesses) are not available for benefits. Thus, these would be shown as a payable. Personally, I don't think they are a distribution payable, but more of an other payable.

[Guest Charles G]

Good technical point Becky Miller. Glad to hear from the auditors' veiwpoint. I agree with you regarding 'other payables', as I did not consider that aspect.

With this being the case...

'Other Payables' due to 'Corrective Distributions'; one would expect that an 'other payables' being reported for a daily valued plan on a 1999 Schedule H, would also likely be the same amount being reported as 'corrective distributions' within the 2000 Schedule H.