First year Form 5500 with no assets

A client established a profit sharing plan during 2021 (drafted and signed before 12/31/21) with every intention of making a first year contribution.  The client also has a 401(k) plan that's been in existence for years, but they wanted the profit sharing plan to be a stand-alone program.  It's intended to operate as a trustee-directed investment fund as opposed to the participant-directed 401(k) plan.  Due to certain cash flow issues, they now decide to skip the contribution for 2021.  There are well over 200 eligible participants. 

We (the TPA) plan on preparing Form 5500 reporting the accurate participant count and zero assets.  The auditor says they've never had this problem before, and don't know how to proceed.  Other than auditing the employee eligibility, they're stumped on what to do regarding the lack of assets and how to report.  By the way, the client is aware that an audit is needed for this second plan (with whatever cost is involved).  We suggested that if they don't plan on making a profit sharing contribution for the next few years that they terminate the plan and then re-establish to avoid these additional annual auditing fees.  They declined.

Has anyone faced this situation who can offer some guidance?

Thanks.

I provide no advice.

The plan’s administrator with its lawyer, and the independent qualified public accountant (IQPA) with its lawyer, might consider these steps and others.

The plan’s administrator prepares a complete set of the plan’s general-purpose financial statements according to generally accepted accounting principles. One imagines most (but not necessarily all) amounts would be zeroes. The notes to these financial statements would include (at least) required explanations and other points.

The IQPA reads the plan’s governing documents.

The IQPA reads the employer’s business-organization documents to get reasonable assurance that no contribution was declared.

If a bank or an insurance company set up an account, will the qualified institution furnish a certification to confirm the plan’s zero assets and that no money or property was delivered for investment?

Absent a certification the IQPA may rely on, the IQPA performs such audit procedures as the IQPA finds appropriate to get reasonable assurance that the plan has no asset and has no contribution receivable.

For each audit procedure the IQPA ordinarily would perform regarding another retirement plan, the IQPA records in the IQPA’s work papers why the procedure was unnecessary in this plan’s circumstances.

The administrator signs a management-representations letter to state facts the IQPA reasonably requests to be confirmed.

The IQPA reads the management-representations letter to find that all requested facts are stated.

The IQPA reads the administrator’s Form 5500 report and schedules to find that these are logically consistent with the plan’s financial statements.

The IQPA writes and delivers its audit report.

The IQPA writes and delivers the after-audit communication required under generally accepted auditing principles.

I agree with @Peter Gulia's "no advice" above.

It shouldn't be an issue for the IQPA, just a bit more time and an additional line on the invoice...  

Thanks for your suggestions.  I will forward to the auditors for them to decide how to proceed.

I head the Illinois CPA Society Employee Benefit Plan committee and this very topic came up in our July meeting. A committee member actually performs 3 zero asset audits each year. They contacted Marcus Aron of DOL directly and he informed them that the audit had to be performed, pretty much following the guidelines that Peter outlined above.