Contributions in Form 5500

[richard]

I've always shown the contributions in Form 5500 as the contributions "for the plan year." In other words, I take the contributions actually made during the year, add the receivable as of the end of the year, and subtract the receivable as of the beginning of the year. Pretty standard stuff. (And of course, the contribution agrees with the tax deduction taken.)

Recently, I've seen (and taken over) a number of plans where the contributions shown on the 5500 were the contributions actually made "during the year" --- and excluding receivables.

1. If I transition to the "for the plan year" basis, I will wind up including an extra contribution (the end-of-year receivable) in my first 5500. So, the contribution shown in the 5500 will not equal the deduction. (Of course, in future years, everything will be fairly normal.) Any problems with this approach.

2. Or, can I stay on the "during the year" basis? And, if the IRS questions the deduction vs. the 5500 contribution, explain that the difference is due to the receivables. (Assume that this is not a DB plan.)

This has come up several times on 401(k) plans where the employee contributions and assets were taken from the mutual fund statements (there were no company matches), and the receivable was ignored. The receivable is simply the employee's deferral in the last week of December that wasn't sent to the mutual fund until early January. Shouldn't the ADP test be done based on contributions deferred for the year (and not contributions actually made during the year)?

Shouldn't the 5500 include those late December deferrals?

[Guest]

the ADP test has to include contributions for the plan year.

the 5500 instructions say (schedule H or I)

'Line 2a Include the total cash contributions received

AND/OR (FOR ACCRUAL BASIS PLANS) due to be RECEIVED.'

so it depends on whether you are reporting things on an accrual or cash basis

[Richard Anderson]

I agree that the financials on the 5500 can be on either accrual or cash basis, but I am unsure as how to report a change from accrual to cash. Or, is it even nessecary to report the change? If changing from accrual to cash, can you use a beginning balance that is different from the ending balance on the prior year's 5500?

[Kristina]

Since you are taking over the plan for administrative purposes, it is a logical time to make a change from the cash basis to the accrual basis. To accomplish this, attach a statement to the 5500 series for the plan year in which you make the change. This statement must be on a separate piece of paper and can not be written on the Sch H or I. The statement should state that the plan was on a cash basis and a change has been made to the accrual basis. Provide a breakdown by plan year and amounts to total the amount shown on the Schedule H or I. Also, on the attachment be sure to include Items A thru D from the Sch H or I and that it is an attachment to the Sch H or I and include the line number you are commenting on.

This should resolve any questions an IRS auditor might have in that transition year as they will have access to the 5500 series as filed.

With the DOL's ban on stapling, I used the term attachment loosely. Perhaps enclosure would be more accurate.

[Richard Anderson]

Thanks, Kristina

[Guest shafter]

In 1996 (yeah things have changed a bit since then)our legal department contacted IRS regarding this issue. The IRS opinion at the time was they had not received Form 3115, did not expect to receive Form 3115 and that no filing for Form 3115 is required for change of accounting method. Caveat at the time "IRS is not bound by verbal advice however, and their position could change in the future. Well, maybe things haven't changed all that much!

[Kristina]

It makes sense that the 3115 is not required as they define who may file as "the applicant is the taxpayer". Qualified plans are not taxpayers.