Large plan (125 participants) filed Form 5500 but failed to include an audit with the filing.  Are penalties automatic or are there allowances for first-time offenders?  The instructions say that penalties MAY be assessed or imposed, unless failure to file properly is for reasonable cause.  What would they consider reasonable cause?

I have sent letters and gotten the penalty waived.  However, most of my experience pre-dates the DFVC program.   The key was to make the case it was unintended and it really is the first and only time it will happen.  

Recently, we had one plan that didn't have the audit report ready, so filed the 5500 anyway;  They got a letter from the DOL saying the filing was rejected, and that they had 45 days to file an amended 5500 with the audit report.  Also had to let the Office of the Chief Accountant notifying them of the amended filing.  Did that, and don't think we heard from the DOL again.

11 hours ago, chc93 said:

Recently, we had one plan that didn't have the audit report ready, so filed the 5500 anyway;  They got a letter from the DOL saying the filing was rejected, and that they had 45 days to file an amended 5500 with the audit report.  Also had to let the Office of the Chief Accountant notifying them of the amended filing.  Did that, and don't think we heard from the DOL again.

One of our clients just got that same letter....  Unfortunately, "some" in this industry think this is a legitimate tactic - as filing under DFVC has a price tag associated with it - and "apparently" the 45 letter lets you off "scot-free" if you meet the deadline.

I think it is a very, very dangerous practice....

20 hours ago, chc93 said:

Recently, we had one plan that didn't have the audit report ready, so filed the 5500 anyway;  They got a letter from the DOL saying the filing was rejected, and that they had 45 days to file an amended 5500 with the audit report.  Also had to let the Office of the Chief Accountant notifying them of the amended filing.  Did that, and don't think we heard from the DOL again.

chc93, I've seen this happen as well. However the important point being that if it's not done within the 45 days there will be consequences. In the case I'm thinking of, the plan sponsor's audit report wasn't done on the deadline, and it was just *barely* able to be finished by the 45 day mark.

I agree with MoJo, my preferred option is to have the plan sponsor file late under DFVC. It's just not worth it.

Many plans are filed without the audit report each year.  The key is to file an amended filing which includes the audit report within the 45 day period specified in the letter notifying the Plan Administrator of the filing deficiency.

File the amended filing with all the original schedules and attachments and including the audit report within the time frame and you should be fine.

If the auditor does not complete the report by the time you need to file to avoid penalties, then draft a letter to the EBSA explaining the reason for the deficiency is due to conditions outside the Plan Administrator's control (assuming all data was provided to the auditor in a timely manner) and attach that to the filing as your reasonable cause.

2 hours ago, Kristina said:

Many plans are filed without the audit report each year.  The key is to file an amended filing which includes the audit report within the 45 day period specified in the letter notifying the Plan Administrator of the filing deficiency.

File the amended filing with all the original schedules and attachments and including the audit report within the time frame and you should be fine.

If the auditor does not complete the report by the time you need to file to avoid penalties, then draft a letter to the EBSA explaining the reason for the deficiency is due to conditions outside the Plan Administrator's control (assuming all data was provided to the auditor in a timely manner) and attach that to the filing as your reasonable cause.

 

In fact, EFAST2 has an Attachment Type Code "ReasonableCauseAO", Attachment Description "Reasonable Cause for late or missing IQPA Report".

My guess of what "AO" is "accountant's opinion".

https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/faq-efast2.pdf

Q25: Will the EFAST2 system still receive my filing if I do not attach the IQPA report with my Form 5500 annual return/report when it is required?

The EFAST2 system will receive your filing, but submitting the annual return/report without the required IQPA report is an incomplete filing, and the incomplete filing may be subject to further review, correspondence, rejection, and assessment of civil penalties. Also, if you do not submit the required IQPA report, you must still correctly answer the IQPA questions on Schedule H, line 3. This means you must leave lines 3a and 3b blank because the IQPA report is not attached and must also leave line 3d blank because the reason the IQPA reports is not attached (i.e., was not completed on time) is not a reason listed in any of the available check boxes. You should still complete line 3c if you can identify the plan’s IQPA. Please note that failing to include the required IQPA report and leaving parts of line 3 blank will result in the system status indicating that there is an error with your filing because, as noted above, submitting your annual return/report without a required IQPA report is an incomplete filing, and may be subject to further review, correspondence, rejection, and assessment of civil penalties. Thus, if you find it necessary to file a Form 5500 without the required IQPA report, you must correct that error as soon as possible.

ADDITIONALLY:

The DOL may send a notice when a return is rejected as incomplete under ERISA 104(a)(4). 104(a)(5) provides for the 45 day correction period. The article (see ASPPA Article below) says the letters the DOL sent in 2015 about missing audits were not Notices of Rejection, so they did not start the 45 day clock ticking.

From 2560.502c-2(b)

(3) For purposes of this paragraph, the date on which the administrator failed or refused to file the annual report shall be the date on which the annual report was due (determined without regard to any extension for filing). An annual report which is rejected under section 104(a)(4) for a failure to provide material information shall be treated as a failure to file an annual report when a revised report satisfactory to the Department is not filed within 45 days of the date of the Department's notice of rejection. A penalty shall not be assessed under section 502(c)(2) for any day earlier than the day after the date of an administrator's failure or refusal to file the annual report if a revised filing satisfactory to the Department is not submitted within 45 days of the date of the notice of rejection by the Department.

SEE ALSO this recent message board post on BenefitsLink:

https://benefitslink.com/boards/index.php?/topic/62117-large-plan-audit-not-done-by-extension-deadline/

And this 2015 ASPPA Article:

https://www.asppa.org/News/Article/ArticleID/5554

DOL Initiative on Missing Plan Audit Reports

By Janice Wegesin • November 05, 2015 • 0 Comments

On Monday, Nov.2, 2015, the Employee Benefit Security Administration (EBSA) sent about 1,200 letters by email to filers of 2014 Form 5500 that did not properly include the report of an independent accountant. The emails do not constitute enforcement correspondence — that is, the letters are not Notices of Rejection of the Form 5500 filing and do not start the running of the statutory 45-day correction period.

Emails of this type generally are sent to the individual whose credentials were used to file the Form 5500 series as or on behalf of the plan administrator the Form 5500 using the EFAST2 guidelines. If the practitioner/filer rules were employed, generally the practitioner will be the recipient of the email.

However, the correspondence should be a warning that the DOL has the situation on its radar and put pressure on the plan sponsor/administrator and the benefit plan auditor to quickly wrap up the audit and file an amended 2014 Form 5500 report including the report of the independent accountant. If the 2014 filing is not perfected in the next few weeks, such filers should expect EBSA to issue formal Notice of Rejection letters, which will be sent via express delivery service (e.g., USPS or UPS). These letters generally will be directed to the plan administrator named on the filing and will indicate that the 45-day statutory correction period has begun.

Janice M. Wegesin, CPC, QPA, is President of JMW Consulting, Inc.

On ‎12‎/‎13‎/‎2018 at 3:25 PM, Kristina said:

Many plans are filed without the audit report each year.  The key is to file an amended filing which includes the audit report within the 45 day period specified in the letter notifying the Plan Administrator of the filing deficiency.

And if you filed without the report and still don't have it within the 45 days after the letter, the plan sponsor should be prepared to pay the $50,000 penalty or pay the cost to get an attorney involved, either of these are more costly than using the DFVCP option. If you don't file at all, the DOL generally allows the IRS to contact you first so that you still have time to use DFVCP.

I agree with MoJo's comment above that filing anyway, without the audit completed, can be a dangerous practice.

The reason for the 45 days is DOL knows well if you act quickly and hire a reasonably good EB accounting firm, they should have this done within 4 weeks max. I have been involved in this for a Big Four many, many times and the key is to file it timewise as quickly as possible with a request for abatement--but if you get a DOL letter before you file, tell them your scheduled timing to get the audit report done and then make sure that you MEET that schedule under all circumstances. 

I agree with John, MoJo, and others above.  I would not encourage a client to file an incomplete annual return.  You are simply better off filing a complete annual return late and paying the user fee for doing so.  

As a practitioner, you have to consider the liability you are exposing the client (and yourself) to by recommending that they file an incomplete return because you expect to get another 45 days to fix it, rather than paying a small user fee to do it properly.