Reporting of Late Deposits on form 5500

[Nic Pospiech]

I have a client whose previous TPA reported a late deposit on their 2023 Form 5500.

The deposit was for a payroll dated 1/4/2023.  The client provided the detail to the TPA on 1/11/2023 - the funds were not actually deposited until 1/17/2023.

The TPA - when preparing the Form 5500 reported this as a late deposit.

Should they have?

I know it is past the Small plan Safe Harbor 7 business day rule.  But the rule I thought needed be followed about "late deposits you would place on a 5500" is the "soon as administratively feasible, but no later than the 15th business day of the next month".   Now...I know if there was an audit the IRS is going to only consider the "soon as administratively feasible" part of this.  But...should this have been reported as a late deposit on Form 5500 (question 10a).  The missed earnings was $1.31.

 

Just want to make sure i am understanding the reporting requirements correctly.  I would have said no.

[Bri]

That's the Tuesday after MLK day, so is there any argument that the transaction started the Friday before (business day #7) and the funds just *settled* on the 17th?

Anyway, if they went out of their way to fix it with earnings, then they're owning up that they did it, and should report it.

[Peter Gulia]

Nic Pospiech’s question shows why a plan’s administrator ought to read, carefully, a third-party administrator’s draft of a Form 5500 report.

Unless the service provider has discretionary authority and in writing accepted an allocation of fiduciary responsibility for the reporting, the plan’s administrator is responsible.

(I’m not saying that different reporting would have been proper, only that the administrator lost an opportunity to consider, initially, the reporting.)

[Nic Pospiech]

The Plan Administrator never made up the earnings, they dispute that this was their responsibility as the TPA just simply forgot to do an ACH pull for the funding. They just didn't review the 2023 5500 well enough and questioned why the late payment was showing up on the 2024 5500 draft.  So...what they want to do is amend the 2023 filing to remove the late deposit, as they believe it shouldn't have been there in the first place.

I was more just wondering about whether it should have been reported at all.  I would have said it should not have been, but I find that I am not always correct, so I wanted to see what other folks would have done when completing this 2023 5500.

[Peter Gulia]

Thank you for that context explanation.

If you are the successor TPA, you might want your lawyer’s advice about ways to protect yourself.

[RatherBeGolfing]

38 minutes ago, Nic Pospiech said:

So...what they want to do is amend the 2023 filing to remove the late deposit, as they believe it shouldn't have been there in the first place.

Soooooo, because someone else may not have do their job the contributions were not late? 

I agree with Peter, if this is what you are going to do or advise the client to do, you need to speak to legal to protect yourself.  There may be an explanation, but you need to make sure its reasonable and can stand up to scrutiny. 

Edit: just re-read the OP.  Why go through this for $1.31?  Especially after it has already been reported and the IRS/DOL are aware of it (they data-mine the 5500s).  Just deposit the $1.31 and move on.

[Peter Gulia]

Even when a TPA provides services it says are nondiscretionary with no tax or other legal advice, some TPAs prefer not to be associated, even with nothing more than computer processing, with a plan administrator’s Form 5500 report the TPA feels states inappropriate information.

Other TPAs prefer to follow the plan administrator’s instruction, deliberately saying nothing about whether it’s right or wrong (even if it’s unambiguously wrong).

Some TPAs look for a context-sensitive ground between those points.

How a TPA sorts itself in those themes might involve questions on which a TPA wants its lawyer’s advice.

Consider too that advice to a TPA about how to handle these situations might vary with an understanding of the advisee’s business goals, customer relationships, other business relationships, regulatory relationships, operating circumstances, legal and practical liability exposures, reputation aspects, and other facts and assumptions.

[Paul I]

It seems like @Nic Pospiech is posing the question more out of curiosity about what the situation rather than to advise the client or to act on behalf of the client. Yes, there are many dimensions to this situation that can be lessons for all TPAs, and most will distill down to documenting clearly between the client, the fiduciaries and the TPA who will held accountable for the consequences of operational errors.

Without clear documentation, the client and fiduciaries need to know that they almost always will have or share that accountability.  Without clear documentation, the TPA may not be held accountable by regulatory agencies but will be held accountable by the client or fiduciaries who have engaged the TPA for its services.  In this case, the prior TPA lost the client.

The conundrum is here is the late deferral previously was reported but the lost earnings were not funded.  Forgetting the magnitude of the numbers, technically the reported late deposit has not yet been fully corrected and would be reportable until it is.  Whether of not the 2024 5500 reports it is a decision for the client and fiduciaries to make.  Nic's likely best option is to discuss alternative consequences but not advise the client on which path to take.  Hopefully for Nic, the client and fiduciaries will recognize that Nic's response to operational issues will be as a part of the same team working on behalf of the plan, and not adversarial while only looking out for Nic's own interests.

This is my just $1.31 opinion.

[Nic Pospiech]

Thanks for the discussion.  I think the client is just going to make the $1.31 deposit and report the failure on the 2024 5500.  It will just be removed on the 2025 5500 (the first one that my company is preparing).  We of course did not provide any specific advise to client.  We just provided some options they could take.