Audit needed?

Company establishes Profit Sharing Plan (not a 401k) in 2020. 90 participants beginning of year. Makes no contribution for 2020, so 0 assets. No 5500 filed.

As of 1/1/21, there are now 130 participants. No contribution to be made for 2021, so still 0 Assets. If they were to file a 5500, they are subject to audit. Doesn't want to file a 5500 since there are no assets.

Comments? What would the auditor audit?

DFVC a Form 5500-SF for 2020 since it was due even though there were $0 assets.

Yes they have an audit for 2021 as you have move than 120 participants on the first day of the plan year. Should be the cheapest easiest audit in history one would suppose.

Why does the Plan exist? Should it be terminated? Yes it has filing requirements as long as it exists.

Even if one imagines an audit of a retirement plan trust’s financial statements that report no asset (beyond a right to collect a contribution if the employer declares one), no income, and no expense, don’t be surprised if an independent qualified public accountant seeks a minimum fee it charges for any ERISA audit, no matter how little work the IQPA anticipates.

And don’t be surprised if the IQPA requests some writing in which “management” confirms that no contribution was declared.

Peter, I'm guessing even the minimum will be beyond what this client wants to pay since they didn't file 2020 and don't want to file 2021. And while it should be a "cheap" audit by audit standards it could still be expensive by zero asset plan standards. If the TPA has a good relationship with some accounting firms, particularly if they refer other business their way, they might be able to get a discount of this one knowing it will be super simple.

But since this isn't even a 401(k) Plan I still don't understand why they don't (or didn't) terminate it, since under SECURE, they can always adopt a new plan up until the due date of their tax return.

I'm not saying this as a fact, but bringing it up as a possibility to be explored. Was this PSP communicated to employees (via SPD and any other methods)? Other than a plan document, was there anything else to support that there was indeed a plan?

Maybe via the facts and circumstances it could be construed that there never actually was a bona fide plan? What were the reasons for not making 2020 or 2021 contributions and is that now likely the case for 2022 as well? Say they NEVER make a contribution - was there a plan?

I might even go so far as to say if the company deducted fees it paid to generate a plan document, such might not be a legitimate business expense because in practice there was no employee benefit plan established.

Maybe this is just alternate universe upside down crazy talk, and I'm not saying I would hang my straightjacket on this, but just thinking outside the box (or asylum cell).

Ha, maybe this "unused" document can go towards some random plan sponsor who never signed a document but had all those board minutes and resolutions intending to set one up!

Definitely one for the Upside Down.

With the new audit requirements, Peter is absolutely right and it would still be a number that would surprise many people due to the requirements added on this year to an effective audit. The CPAs still have their checklists that they have to follow regardless of how large the Plan is.

An auditor must document her work thoroughly enough that a “cold” reader—an independent peer reviewer, or the Secretary of Labor—could see from the auditor’s work papers alone that the auditor met all ERISA § 103(a)(3)(C) conditions and other generally accepted auditing standards.

About whether the company established a plan, has bzorc or another professional evaluated whether the human who signed a document had been authorized to adopt the document as the company’s act?

As an auditor and, as other have alluded to, even if there is no balance there are still certain steps and check lists that need to be completed to comply with the auditing standards.  Besides the standard set up of a new client, possible drafting of the financial statement as a nonattest service, drafting of AU-C 260 letter, potential drafting of AU-C 265 letter, drafting management representation letter, reviewing board minutes, all of the required inquiries, reviewing all of the plan documents, etc., I could also see there being some level of testing performed on participant data to ensure those that are eligible are properly included and those that are not included were properly excluded for not meeting the eligibility requirements.  Have to remember that it isn't just the balance of assets in the plan that are tested as part of this type of an audit.  Also keep in mind that an audit can't be issued without the auditor reviewing a draft of the 5500.  Don't be surprised if the auditor also wants to see the previously filed 5500, which it sounds like they never even filed.  Note that the items I listed are not all inclusive of the work that would need to be performed and are just an example of some of the items, not to mention the multiple layers of review that the audit likely needs to go through as well.  

Let's say the employer is in a state with one of those mandatory state Roth IRA programs that exempts employers who "maintain a plan qualified under 401(a)" that covers all employees. Would the employer be subject to that state law if they maintain a profit sharing plan like this that covers all employees - but they never make contributions to it (and don't allow employees to elect to contribute 401(k) or after tax contributions to it either)? 

I think the answer could vary based on the state law -but this is something those who write regulations under those state laws should consider.