The Form 5500’s Role in a Plan Audit

Imagine a business owner who is familiar with the Form 5500 Series, but only just; they are surprised when their TPA says they need to have an independent qualified public accountant (IQPA) audit the plan and its Form 5500.

 

A recent blog post provides a nuts-and-bolts reminder of the importance of such a review and what one can consider communicating in such a circumstance. In “The One About the Audit Requirement for Form 5500” on the Ferenczy Benefits Law Center blog, Ferenczy attorney Tia J. Thornton provides a discussion of why the review of an IQPA is important and will help one to stay in compliance with reporting requirements.

The Form 5500 Series is part of fulfilling the reporting and disclosure requirement under ERISA, which, Thornton reminds, is intended to assure that (1) a plan is operated and managed in accordance with certain standards and that (2) participants, beneficiaries and regulators either have access to, or are provided, information sufficient to protect participants’ and beneficiaries’ benefits and rights. And the information the Series contains—which includes financial statements, books and other plan records—all are materials to which an auditor must have access, she writes. In fact, she notes, under Section 103 of ERISA, an IQPA must audit annual reports. 

 

Thornton argues that it is helpful to consider an IQPA a friend. “Good friends are the ones who keep you out of trouble. Consider IQPAs to be that type of friend,” she says, Thornton points out that an ICQPA alerts a plan administrator if there are problems with an annual report, which, if left uncorrected, can cause a report to be rejected and the plan penalized.

 

And an IQPA’s review makes financial sense, Thornton indicates. She observes that the SECURE Act has made the IRS penalties for late or deficient filings 10 times heavier. Not only that, the penalty the Department of Labor (DOL) imposes for late filing can be up to $2,233 per day, with no maximum. And, she writes, both penalties may apply simultaneously.

 

 

Thornton notes that ordinarily, plans with 100 or more participants at the beginning of the year must file Form 5500 and be audited, while plans with fewer than 100 participants at the beginning of the year file Form 5500-SF and do not have to be audited. In addition, the Form 5500-EZ does not have to be audited.

 

However, Thornton writes, “determining a plan’s size for purposes of filing Forms 5500 and 5500-SF isn’t exactly cut and dried.” For instance, she notes, the 80-120 Rule can exempt a plan from the audit requirement. That rule, she reminds, says that if the plan was eligible to file as a small plan for the prior plan year and did so, and did not cover more than 120 participants at the start of the current plan year, the plan may continue to file as a small plan and continue using Form 5500-SF (as long as it still meets the other requirements for doing so). 

 

And timing can be everything. Thornton notes that if one files so close to the deadline that it does not have time to have an audit, it can file an incomplete 5500. If it does so, the plan still can have an audit and send the DOL the audit report, unless it wants to risk DOL penalties. Another option, she observes, is to wait to file until an audit has been conducted and the deadline is missed, the plan may file the form under the DOL Delinquent Filers Voluntary Correction Program.

 

“IQPA fees are worth paying in lieu of DOL and IRS penalties,” Thornton argues.