Delayed Audit / Short Plan Year - Interesting Read on Rules

DOL Regs 2520.104-50 regarding short plan years/deferral of audit report.

(b) Deferral of accountant's report. 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, provided that the following conditions are satisfied:

(1) The annual report for the first of the two consecutive plan years shall include:

(i) Financial statements and accompanying schedules prepared in conformity with the requirements of section 103(b) of the Act and regulations promulgated thereunder;

See 103(b) from US Code (definition of financial statements)

https://www.law.cornell.edu/uscode/text/29/1023

Taken from this link:

(2)

Not sure, but I think in the first year the financial statements required are the ones you provide in the 5500 itself, not in the audit report that otherwise would have been filed.  What do the 5500 instructions say?  

The regs say you must nclude 103b financial statements.  A quick review of 103b suggests that that is not the case.  Look at the required disclosures under 103b.  I saw a lot of familiar items there - items that are included in auditors footnotes to the financials (but are not anywhere on the Schedule H).  Example: Information concerning whether or not a tax ruling or determination letter has been obtained;

Check the 5500 instructions.  I have to believe they say something.  

OK, I can't argue with a good suggestion!

The only exception in the 5500 instructions is the IQPA Report - NOT the fianncial statemetns, just the related opinion letter.  And it reference the same DOL Reg I included above. Empahsis added below accordingly.

Line 3d(2). Check this box if the plan has elected to defer attaching the IQPA’s opinion for the first of two (2) consecutive plan years, one of which is a short plan year of seven (7) months or fewer. The Form 5500 for the first of the two (2) years must be complete and accurate, with all required attachments, except for the IQPA’s report, including an attachment explaining why one of the two (2) plan years is of seven (7) or fewer months duration and stating that the annual report for the immediately following plan year will include a report of an IQPA with respect to the financial statements and accompanying schedules for both of the two (2) plan years. The Form 5500 for the second year must include: (a) financial schedules and statements for both plan years; (b) a report of an IQPA with respect to the financial schedules and statements for each of the two (2) plan years (regardless of the number of participants covered at the beginning of each plan year); and (c) a statement identifying any material differences between the unaudited financial information submitted with the first Form 5500 and the audited financial information submitted with the second Form 5500. See 29 CFR 2520.104-50.

Again, don't quote me on this, but I'm pretty sure when they say you have to file the financial statements, they mean the 5500 itself and all applicable schedules.  The Schedule H (I assume you are not filing a 5500 SF) is a financial statement.  

I would ask the auditor and see what she or he says.

a) Do you agree that the short plan year reg requires 103b financials for the "first of the 2 years" (the short plan year reg is referenced in the instructions)

b) Do you agree that 103b is a "full-blown" financial statement complete wit disclosures like whether or nott he plan has a determination letter, a description of the Plan, etc.  These things simply are not part of the 5500.

I too thought initially that what you are saying had to be the case. It just HAD to be.  But if you read the rules, it just does not say that.

I am just an ERISA attorney.  I would ask an auditor.   

Funny you should say that because that's who asked me!

Anyway, the auditor who asked me, their firm does hundreds of audits and they had never heard of it before.  But we all look at the plain English rule, and there it is.

Curious if there any other thoughts out there...

The only time I've heard of this an auditor mentioned it to a client who was terminating their plan. That motivated them to be sure they got the assets paid out quickly so they could take advantage of only doing 1 audit for the final 2 plan years.