Bizarro 5500 question from client

Any thoughts on this one is appreciated.

We have a large 403(b) Plan, over 100 lives.  They have filed as a large plan previously, along with the required audit.

A new ownership group took over; 2023 plan year is their first one involving the plan.  After much foot dragging, I finally received their 2023 employee data, 6 weeks before 10/15.  After stressing that they need to take action since the audit is needed and those take time (and money), I finally heard back today:  "They do not believe the audit is needed".  They want us to finish the 2023 form 5500 and they will file but without the audit.

Reasoning and pointing out that an audit is needed whether they want to engage that or not has gone nowhere.

I can document how they are wrong on this, but otherwise, would everyone just prepare the 5500, indicate the audit is not attached, and let them get 
"caught" by the IRS/DOL a few weeks from now?  Should we as the TPA file the 5500 for them knowing it is not complete?

Thanks for any comments.

Owners? If they have a 403(b) plan, how would the plan sponsor have any owners?

How many participants have account balances?

is it a deferral only plan with no employer involvement?

If you have already quoted the 5500 instructions and pointed out the number of participants with balances, perhaps ask for their citation to the contrary. It’s not a belief system and not an interpretation. Try to find someone who will listen, but as a provider, you are engaged to prepare the 5500 properly, so the consequences to the plan sponsor are on them or they can engage another provider to do the work. 

I'd back up Mr. Feldt in suggesting that you decline the work and send them somewhere else (I believe that's what he's saying).  However, that's based on the facts as you present them, and to give you my best take I'd need a lot more facts.

On 9/14/2024 at 3:38 PM, John Feldt ERPA CPC QPA said:

How many participants have account balances?

This rule just changed for 2023, and I think we all noted your post does not say "there are more than 120 people with balances"  perhaps you were just writing in shorthand and there are 1,000 people with balances but it's the big shiny object in your post that I cannot unsee 😁

Thank you for the replies.  There is a non-profit organization that runs the company, not "owners".

it is a deferral + company match.

Participant count:  135 participants with account balances on 1/1/23.  So no relief there.

I find it hard to believe that in the face of overwhelming evidence they would have no choice but to concede.  Perhaps if you send them a screenshot of this post, with the Austin Powers, confirming they need the audit, they will realize the foolishness of their ways.

I feel like this question is akin to the follwing:  The client says "2 + 2 = 5" please proceed accordingly.  IT's unsolvable equation and therefore it's impossible to suggest the proper path. 

If you file the 5500SF with 135 balances I assume the DOL would flag it as invalid in need of an audit (seems to be a pretty basic check, even the software validations should flag that).  And if you file the large 5500 without the audit, it's only  a matter of time before the DOL comes calling for sure.  So again, this is the unsolvable equation.

Listen to what austin3515 says about how your software might react to a report that would be logically internally inconsistent.

Eighteen or as few as 15 business days remain before October 15. (Federal, State, NYSE, and religions’ days vary.)

Most CPA firms with a capacity for employee-benefit plan audits long ago stopped accepting engagements for 2023 audits.

But with a relationship plea and a rush fee, a plan’s administrator still might engage an independent qualified public accountant.

About what Form 5500 report (if any) a TPA might prepare (or decline to assemble), a few suggestions:

1.     Read, carefully, your service agreement to know your rights, obligations, and conditions.

2.    Even if it is the plan’s administrator that must sign the report, don’t assist a false or misleading statement.

3.     Be careful with anything your client might alter or misuse, especially if it has your name associated with it.

4.    CYA—Cover Your Assets.

This is not advice to anyone.

I should point out as well, it is not at all uncommon for these audits not to be done by the 15th.  Through no fault of our own (as the TPA) and despite the CPA's very best intentions and efforts, these audits do not get done in time. I think it is generally accepted as the norm to file the form sans audit report and get it done and amended and filed as soon as possible. You might get a DOL letter before you are able to amend but that usually says you have 45 days to comply. So I agree you're not going to have an audit done by 10/15th but I've rarely (not never) seen actual penalties imposed for delay.

Many years ago my advice was to NOT file and then use the DFVC program later in liue of filing a 5500 that was known to be deficient.  I was in the clear minority on that position due chiefly to the fact that everyone else was filing on time without the audit report.  If the 5500 is filed without the report I can confidently tell you, your client will have a lot of company.