5500 w/ No Audit Report

I have seen some auditors attach to the 5500 as the audit report a letter that basically says "hey. we're working on the audit."

The benefit of this approach (which is what I don;t like about it) as the filing will be accepted without error.  I happen to think it is a little disingenuous because though it looks like you are "doing the right thing" by disclosing the fact that you are working on the audit it has the effect of hiding the fact that you haven't done the audit.

Do others recommend in favor of or against this approach?

I’ve drafted attachments of a kind you describe.

There are circumstances in which filing an otherwise fair Form 5500 report that lacks an independent qualified public accountant’s report is better than filing nothing.  And a plan administrator’s honest explanation in its .pdf attachment might be more decent than misleading.

Filing this way does not get a pass for long.  The Labor department’s computer system might process the incomplete report (and publish it for the public website).  But there are further screenings, some automated and some by humans.  The Labor department knows there are a substantial number of submissions of these not-done-yet attachments.  At least enough so they have regular procedures to detect and follow-up on these submissions.  Even without a human, the computer system can scan both the size and content of a .pdf to discern one that likely lacks financial statements.  And sampling catches some more.

In my experience, the Labor department sees quickly the lack of an IQPA report, and sends an or-else letter about imposing penalties.

But if a plan’s administrator is diligent about getting the IQPA’s audit done and files an amended Form 5500 report quickly (ideally, before being caught), EBSA might give some administrative grace.

If the auditors aren’t done shortly after the 5500 was “filed”, the DOL sends a letter saying it really wasn’t filed because the accountant’s opinion was not attached. The letter gives the sponsor 30 days or so to send that opinion to the DOL, after which they intend to collect their $50,000 penalty if the report is not received. After that short deadline in the DOL letter expires, the DOL begins their process to collect $50,000 (or more) from the plan sponsor.

The plan sponsor now realizes the DOL wasn’t kidding, so they finally engage legal counsel. Their legal counsel thinks this to themselves: “Why did they file without the attachment?  Why didn’t they call me when the first DOL letter was received? Don’t they know the DOL generally isn’t looking for returns that aren’t filed, that the IRS does that? And, when the IRS finds them, the IRS would still let them use the much less costly delinquent filer program? If I can convince the DOL to only fine them $15,000 and my billing is $10,000 then they’ll save 50%, but they really paid more than 1,000% over the DFVCP cost. What is my billing rate for this again?”

Years ago I noticed a 5500 where the prior year’s opinion was attached again for the current filing, but I never found out how things turned out for that employer.

For many situations in which a plan’s administrator strategically decides to file an incomplete report, the situation often already involves an EBSA investigation and a current or predecessor fiduciary’s known breach of the fiduciary’s responsibilities.  Likewise, the plan’s administrator already was lawyered-up.

For situations not so freighted, John Feldt mentions smart points.

If auditor's report is not available, you should file your Form 5500 without attaching anything in place of this report. You will leave 3(a), 3(b), and 3(d) blank, but still fill out 3(c). I would also suggest attaching explanation why the report is not available as the Other attachment. See Q25 here: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/efast2-form-5500-processing.pdf The current answer is short, but back in 2014 it looked like this:

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.

And yes, after this filing the plan sponsor will receive letter granting either 30 or 45 days to complete filing with the report attached. Obviously it is even better to file amended form with the auditor's report before DOL issues the letter.

Someone filing an incomplete return is probably not going to like the fine print on the 5500 itself:

Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including accompanying schedules,
statements and attachments, as well as the electronic version of this return/report, and to the best of my knowledge and belief, it is true, correct, and complete.

2 hours ago, Calavera said:

And yes, after this filing the plan sponsor will receive letter granting either 30 or 45 days to complete filing with the report attached.

It's 45 days. See DOL Reg. sec. 2560.502-1(b)(3). As far as I know, omission of the audit if the only material omission that has a grace period. If you are REALLY confident you will have the audit within 45 days, then conceivably you will be OK filing without and then filing amended with audit within 45 days. Otherwise, I think a lot of filers will take their chances and wait to file under DFVCP when they have the missing audit, hoping they do not get contacted by DOL regarding late 5500. If you file with material omission, then the DOL's response to your filing telling you it is incomplete disqualifies your for DFVCP. Usually a 5500 with a material omission is more likely to get a quick bounce back from DOL than failure to file when your prior was not marked final.

Agreed.  Yes, it's 45 days from the date on the letter, but that might be a week or so before you even get a copy of that letter in your hands.

5 minutes ago, John Feldt ERPA CPC QPA said:

Agreed.  Yes, it's 45 days from the date on the letter, but that might be a week or so before you even get a copy of that letter in your hands.

Sure.

45 days from teh date you get the letter, which will likely be middle of November at the earliest.  And then in my experience if they are making a lot of progress, they would then send a letter that the audit is in progress.  

I'll tell you in all my years I never heard of a fine being levied on a plan administrator that was getting the audit worked on.  Has anyone actually seen a fine levied because the audit was not returned in that 45 day period when the plan admin made it clear it was a work in progress?  That seems awfully hard to imagine.

My understanding with the DOL is we have always given a fixed date for the audit to be done and filed and then met that promise.

If you set a reasonably expeditious date and then meet it, I have never seen a client penalized in several dozen of these over 

4 decades. By the same token if an auditor cannot get it done within the 45-day requirement (unless multiple years are involved), shame on them--get another auditor.

We have seen both circumstances: Filed without the audit, received 45 day letter form DOL, client got the audit done, filed an amended return, and sent a copy to the National Office:  still get an assessment of penalty for number of days late from original filing date (extension null and void). Sometimes, there is a reasonable cause explanation that gets you a reduced or waived penalty.  

When amended return with audit is NOT provided in 45 days, no extension is permitted.  They get  an assessment of penalty letter.   No longer eligible for DFVC or getting penalty waived, though maybe reduced with a very good story.   

I think that IF an auditor has been engaged and reasonably assume they can get the audit done, I prefer the "file late and complete return, under DFVC amnesty. 

A $2,000 DFVC fee is a lot less costly than an ERISA attorney, assuming it is just one year, and there are not compliance issues that hold up getting a clean audit.  And no one is signing a form under penalty of perjury, falsely claiming the filing is complete and accurate.  

5 hours ago, Eve Sav said:

A $2,000 DFVC fee is a lot less costly than an ERISA attorney, assuming it is just one year, and there are not compliance issues that hold up getting a clean audit.  And no one is signing a form under penalty of perjury, falsely claiming the filing is complete and accurate.  

I was able in a similar situation to get a proposed $55,000 DOL penalty reduced to $5,000. The legal fees exceeded $5,000, let alone $2,000.