Missed Deferral Opportunity - Form 5500 Sched H line 4a

Hello.  Participant signed up to defer (403(b) Plan) in June 2022.  Her choice was never implemented. This was discovered during the 2023 plan audit (large plan). Participant never noticed. She is going to start deferring this month.  Client never noticed either.  I am working on the correction now, but the auditor says the amount of her missed deferrals has to go on Schedule H line 4a.  I'm not convinced as the they were never withheld by the employer for contribution to the plan so not technically late.  Thoughts? 

TYIA!

The 2024 Form 5500 instructions for Schedule H line 4a refer to: “Amounts PAID by a participant or beneficiary to an employer []or WITHHELD by an employer for contribution to the plan are participant contributions that become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets[.]”

While failing to implement a participant’s elective deferral might involve tax-qualification conditions, a plan’s financial statements might not necessarily include an accrual or disclosure about an amount that never was taken from a worker’s pay.

Consider whether the plan’s administrator might want its lawyer’s advice about whether the participant ratified a nondeferral, and, if not, what correction might be necessary, appropriate, unnecessary, or even unwise.

Further, consider whether the plan’s administrator might want advice (perhaps independently of the independent qualified public accountant) about generally accepted accounting for whatever is (or isn’t) the plan’s receivable or contingent gain.

The AICPA’s generally accepted auditing standards call for an IQPA to find that the Form 5500 report is consistent with the plan’s financial statements, or to note tolerable differences.

Depending on the facts and circumstances, there might be room for an administrator’s Form 5500 reporting position that doesn’t necessarily interfere with an IQPA’s opportunity to render a “clean” report on the plan’s financial statements and related points.

None of this is advice to anyone.

I am not commenting on the 5500 question, but there are specific rules about the contribution which must be made by the plan sponsor which failed to implement the Participant's directive.  SECURE 2.0 expands self-correction with regard to this oversight as well as others.  I suggest working with a TPA or attorney who can guide you with regard to the proper procedure.

14 hours ago, Patricia Neal Jensen said:

I am not commenting on the 5500 question, but there are specific rules about the contribution which must be made by the plan sponsor which failed to implement the Participant's directive.  SECURE 2.0 expands self-correction with regard to this oversight as well as others.  I suggest working with a TPA or attorney who can guide you with regard to the proper procedure.

 

We are a TPA & have counsel in house who are working on the correction. I was looking specifically for replies to my 5500 question but thank you!