Short year audit issue - Schedule H

I have an auditor friend who  has brought up the following issue:

Plan subject to audit terminated and all assets were distributed during the month of June, 2022. The auditor inferred to the plan sponsor that they could defer the attachment of the 12/31/21 audit, and include it with the 6/30/22 short year filing (audit will be prepared for the short year), utilizing the answering of Schedule H, Line 3d(2), indicating that the plan "has elected to defer attaching the IQPA's opinion for the first of 2 consecutive plan years, one of which is a short plan year of 7 months or fewer".

The sponsor tried to submit the 2021 Form 5500 without the audit, and the software vendor would not accept the return, citing the lack of the auditor's report being attached to the return.

In all my years I have always applied the language of Line 3d(2) of Schedule H to an initial plan year of less than 7 months. In the scenario above, we would insure that the 12/31/21 5500 filing had the audit report attached, and then again for the final short plan year.

Has anyone seen the scenario above, where the auditor tried to attach both audits to the final short year filing?

Thanks for any replies.

Here's the blurb from the 5500 instructions:

(2) Short Plan Year Rule: If the plan had a short plan year
of seven (7) months or less for either the prior plan year or the
plan year being reported on the 2021 Form 5500, an election
can be made to defer filing the accountant’s report in
accordance with 29 CFR 2520.104-50. If such an election was
made for the prior plan year, the 2021 Form 5500 must be
completed following the requirements for a large plan,
including the attachment of the Schedule H and the
accountant’s reports, regardless of the number of participants
entered in Part II, line 5.
 

As of 12/31/21, I don't think either 2021 or its prior year was the short year. 

If what’s described is proper and feasible, does the accounting firm propose a fee for the one engagement (including the extra work 29 C.F.R. § 2520.104-50(b)(2) requires) that’s less than the sum of the fees for what otherwise would be done in two years’ engagements?

3 hours ago, Bri said:

Here's the blurb from the 5500 instructions:

(2) Short Plan Year Rule: If the plan had a short plan year
of seven (7) months or less for either the prior plan year or the
plan year being reported on the 2021 Form 5500, an election
can be made to defer filing the accountant’s report in
accordance with 29 CFR 2520.104-50. If such an election was
made for the prior plan year, the 2021 Form 5500 must be
completed following the requirements for a large plan,
including the attachment of the Schedule H and the
accountant’s reports, regardless of the number of participants
entered in Part II, line 5.
 

As of 12/31/21, I don't think either 2021 or its prior year was the short year. 

I agree with bzorc and Bri.  We had this situation a few years ago… the auditor asked the same question.  When I pointed out that the prior year was not a short year of 7 months or less, they agreed and did two audits… one for each year.  As bzorc said, I think this rule was for the initial year being less than 7 months. 

13 minutes ago, chc93 said:

As bzorc said, I think this rule was for the initial year being less than 7 months. 

Correct, that is the usual application but it could also apply if a change in plan year created a short plan year

It could also apply if the final plan year was a short plan year.

12 hours ago, Bob the Swimmer said:

It could also apply if the final plan year was a short plan year.

Bob, that's what the entire discussion is about and the conclusion in this thread looks like it can't be done. Please explain how it can.

Here’s the rule:

29 CFR 2520.104-50 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-D/section-2520.104-50#p-2520.104-50(a)

The rule’s definition of “short plan year” states such an accounting period could result because “[a] plan is terminated[.]” 29 C.F.R. § 2520.104-50(a)(3).

The rule’s general relief, subject to conditions, states: “A plan administrator is not required to include the report of an independent qualified public accountant in the annual report for the first of two consecutive plan years, one of which is a short plan year[.]” 29 C.F.R. § 2520.104-50(b).

The Labor department’s explanation of the rule, including the Secretary’s consideration of comments on the proposed rule, includes this example:

“The operation of the regulation in a situation where a plan is terminating may be illustrated by the following example. A plan which has a calendar year plan year will be terminating on May 31,1981. Pursuant to § 2520.104-50(a)(3), the period from January 1, 1981, through May 31, 1981, constitutes a short plan year. The plan year from January 1,1980, through December 31,1980, is the first of two consecutive plan years, one of which is a short plan year. Under the regulation, the plan administrator is not required to provide audited financial statements in the annual report for the plan year from January 1,1980, through December 31, 1980[.]”

Regulation Relating to Reporting and Disclosure for Short Plan Years [final rule], 46 Fed. Reg. 1265 (Jan. 6, 1981), https://archives.federalregister.gov/issue_slice/1981/1/6/1261-1266.pdf#page=5.

Thanks Peter. So this is saying that the instructions and software audit checks are incorrect.

The “short plan year rule” text on the Instructions’ page 8 is not, for as much as it explains, incorrect; it is incomplete. (Perhaps deliberately so.)

Form 5500’s Schedule H at line 3d includes a checkbox for: “The opinion of an independent qualified public accountant is not attached because: (2) ÿ It will be attached to the next Form 5500 pursuant to 29 CFR 2520.104-50.”

If that point is marked, I hope a Form 5500 report that omits an IQPA report should get through EFAST2’s check for internal logical consistency.

Returning to bzorc’s query, we might learn something if bzorc can share with us whether it was EBSA’s software or a provider’s software that flagged a seeming error.

It was a large investment provider who also provides TPA and recordkeeping services. Their software stopped the filing and they won't budge off the position.

1 hour ago, bzorc said:

It was a large investment provider who also provides TPA and recordkeeping services. Their software stopped the filing and they won't budge off the position.

I can't tell from the replies, but as Peter pointed out, was Schedule H Item 3d checked as “The opinion of an independent qualified public accountant is not attached because: (2) It will be attached to the next Form 5500 pursuant to 29 CFR 2520.104-50.”  [emphasis added].  Maybe that's a trigger to reject the filing?