Filing Form 5500 correctly and on time is imperative for 401(k) plan sponsors or administrators. Inaccuracies or missed deadlines can result in penalties and other fines. First-time filers may also be curious about which schedule applies to their plan and how they can ensure they’ve selected the correct option. Director and 401(k) Audit Practice Leader Kim Moore and Audit and Assurance Manager Karen Hill give an overview of Form 5500, important deadlines to keep in mind and other tips for ensuring the all-important tax document is able to be filed on schedule.
Summit CPA Group has merged with Anders CPAs + Advisors! Visit our website to learn more about our 401(k) process and pricing: https://anderscpa.com/401k-audits/
“It can be worse than time-consuming to fix administrative errors, it can be very costly. Make sure you leave time in your schedule to review the forms, make sure they're correct and get them filed on time.”
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Narrator: Welcome to the 401(k) Audit CPA Success Show, where we are 100% focused on helping companies across the United States prepare for their 401(k) audit. If you have 100 eligible participants in your 401(k) plan, then this podcast is for you.
Kim Moore: Hello everyone. This is Kim Moore with Anders CPAs and we are doing another podcast for the 401k Audit CPA Success Show.
So, welcome to all of you and I have Karen Hill, audit manager here at Anders along with me again and this month's podcast topic, we're gonna talk about the Form 5500 as we know that's upcoming. If you have not received your form 5500 yet for your plan, and you are the plan sponsor of a 401(k)plan, you should be receiving a Form 5500 draft soon.
We're gonna talk a little bit about what, what is the 5500, what's the purpose of it? Why is it important? And as the plan sponsor, whether you need an audit or not, you know, you should be reviewing that before you file it, and we're gonna talk a little bit more about that. Let me throw out, my email address at the beginning of the podcast. I'll try and remember to do it at the end as well.
It's the letter K, then m o o r e at anders, a n d e r s c p a.com. Again, it's k m o o r e at Anders with an s cpa.com. Do you have any questions about today's podcast or any ideas for future podcasts or just questions in general about your 401K plan, and if you need an audit, don't hesitate to reach out.
Be happy to help. And we always like to throw that out there in case anybody has any questions over what we go over today. So, with that, Karen, what is, what is form 5500 and why do, why do we care? What is it? What do we need it for?
Karen Hill: Well, it's technically a tax form. And the purpose of it is to provide information to the DOL, IRS and to participants.
And if you put incorrect information on the form, you can have -they that can result in fines. However, I mean it, I wouldn't, if you do something inadvertently incorrect, it's not like they're, they're gonna be combing trying to find every little detail.
But just know that if you do, you know that you have to have an... have an audit attached and you don't attach an audit and then they tell you, oh, you forgot to attach the audit and you never do it. Yes, you can end up with a fine for that. Like I said before, it's tax form and there's no payments involved in it, but it's just to provide information about the plan and depending on what is, what type of plan you have and what kind of investments you have in your plan, you might have different schedules.
Kim Moore: Mm-hmm. Yep. And it's very similar in appearance because it's, you know, tax forms all pretty much look alike. You have your kind of in informational, kind of general beginning part, and then you have schedules at the back, as you mentioned.
Karen Hill: Mm-hmm.
Kim Moore: And we're gonna talk a little bit more about all those schedules.
It's, it's not important and it is. I mean, it's not important in the sense that a lot of people never even know that there is such a thing. You know, you can be a participant at 401K plan. You have no idea that, that there's a form out there. So, and even plan sponsors, I think a lot of times don't.
They, they just know they have to file it. So what are my steps to file it? And that's the end of it. And we're gonna talk a little bit more during this podcast, why that's really not the case and you should pay a little bit more attention to it. One thing I like to point out though, to, to everybody who's filing a 5500, whether there's gonna be an audit attached or not, the form 5500, once it gets filed and it goes through, there's a check process that the IRS uses to make sure that you know it, it goes through just like any other form that you're gonna file electronically, but also they're checking to make sure there's no personal information included in any of the attachments.
So it, it might go through a little bit of a check once it gets through all that and it's actually filed, it's public information. So, you know, you can think of any, think of a big company that you know, and they probably have a 401K plan. You could go out and search and you can see not only the form, but anything attached. So the Auditor's opinion letter and the financial statement is all that is also viewable to the general public.
And anybody that has an internet connection and knows that it's out there and they just do form 5500 search, they can go out and, if they know the name, they can find several years worth of forms out there and they can look at them. So again, it's a tax form, and so you're gonna fill out, it's not free form, you know, you're filling out a digital form.
So it's, it's not like you can put swear words out. I mean, I guess you could, but you know, you, you'd have to put them in, in the, in the format. But, but just be mindful that whatever gets put out there, including any attachments, is going to be viewable by the public. So we always try to caution people don't, don't put things out there. If there's something that is going to happen in the future, but you're not quite sure and it might be slightly confidential, don't attach that in an audit report because it will be viewable by the public.
So, you know, if, if that's something important to you from a competitive standpoint, just make sure you, you're not including that. The other thing I'd say is that it is a, it is required to be filed. There are very few exceptions, but for almost a hundred percent of the time you have to file it using the EBSA system that they have. It's a, it's an electronic system. So this isn't a case where you can go down a library and get your paper form and fill it out and mail it in.
That's not an option with these forms, they have to be done electronically, and in most cases, the service provider that you use is gonna prepare it for you and then you're gonna file it using their system or some link that they have, or portal or something. So, I don't wanna make it sound like, "oh, I gotta go buy some software and go figure," like you might do for a personal return.
It's not like that, but, but you do have to do it electronically, so it, it does corral you a little bit into what information is needed or not for your situation.
Karen Hill: Mm-hmm.
Kim Moore: Just like for a individual return, there are different types. So there is a form EZ. Believe it or not, we never see those because those are
Karen Hill: No.
Kim Moore: For just like a one participant
Karen Hill: Except for maybe prior year.
Kim Moore: Yeah, yeah, yeah.
Karen Hill: Oh, you're talking about the one participant one, sorry?
Kim Moore: The owner? Yeah. The, the owner. One owner and his, his or her wife or spouse. Those rare. I shouldn't say they're rare, but we don't see them.
Karen Hill: Mm-hmm.
Kim Moore: Cause we don't. Usually those don't fall into needing an audit. But but that is out there. Then for companies, there is a short form and a long form, just that's not unusual in a tax return situation. And the, the short form generally is for those with less than a hundred participants. The longer form, generally those with more than a hundred. Now there are differences in that.
And again, your provider will kind of steer you to the right form. But just in case your form changes and you're like, wow, this doesn't look like last year. And now it needs a lot more information, you know, if somebody made a mistake, not necessarily, it could, it could, that could be appropriate, especially if you know your company's been growing, more than likely that's gonna become appropriate.
So, there are due dates, just like any other tax form. Karen, you wanna go into a little bit about the due dates?
Karen Hill: The due date, the, well, there's two different due dates. You have your normal due date, which like, if you're following your personal tax return, it's gonna be April 15th or the next following business day, if that falls on a weekend, and then you can extend to October 15th.
Well, with, With a form 5500, the due date is seven months after the plan year end. So for a calendar year end, that would be July 31st, and then you can extend it for another two and a half months. And again, for a calendar year end plan, 1231 year end plan, that's gonna be October 15th. And for the extension, If you ha- if lots of times your provider will do that for you, I would check with them if you want to file an extension and see if they go ahead and file that for you.
I, if some of the larger ones go ahead and automatically file the extension. Just so. It doesn't mean that you, if you filed the extension, doesn't mean that you can't file it before that, that July 31st deadline. The first deadline, but lots of times they'll go ahead and file it for you. If you want to have the extension filed, I would check it with your provider to make, to see if they do that or if you need to do that yourself.
That extension is a form 5558, and that also must be filed in the same, there's no paper forms for that, so it's, it's filed electronically as well.
Kim Moore: Right, right. And, and on that same system, although those won't become public, you won't be able to see them. And we always recommend that even if you think your provider or maybe they've told you that they're going to do the extension, it's a good idea just to double check.
Because once you pass that date, if you didn't file the extension, you can't, there's no relief. You can't go back and say, "whoops, I missed it. Now I'm, I'm a couple days later. Now I'm gonna file." Nope, once you've passed that date, if there's no extension. You're automatically late in filing your return and, and subject to fines.
Karen Hill: Mm-hmm.
Kim Moore: So just be a little bit careful about that.
Karen Hill: Sometimes they have the copies, your, your providers. Some providers will have the copies if they filed it. It'll be out on the website so that you can actually view it and see that they filed.
Kim Moore: Right. Or they, or they could, sometimes they'll send you a copy too after they filed it just for your records. Good idea probably to keep a copy of that. Or make sure that they have a copy just in case, you know, something happens and you think it's filed and it's not filed. I mean, we, we see that all the time where someone thinks they filed a return and something happens along the way and it actually doesn't go through.
So, good idea just, just to keep that, just in case. The other thing, and we're gonna talk a little bit about all the schedules, but it's, it's very important that you review the form before you file it. And you, you're better off getting that extension, even, you know, if you're right down to the wire and it's, it's end of July, it's a calendar year, and so it's end of July and you're real close to the deadline, but you don't really have time to review it. You're better off using the extension and taking a couple of days and then reviewing and then filing than rush and file it. And I didn't look at it.
And then I look at it later and it's like, oh, whoops. I am, you know, all this stuff is wrong. Now you can, you know, refile, you can correct it and then refile. And there's the, you know, there's, as Karen said, there's not money attached with this, so it's not as if... with like a personal return, you've gotta go ahead and pay what's due and, and you'll get your extension and then you can do it later.
There's no money here. So there's, you know, you don't need to worry about that. But there can be additional costs with your service provider if you have to refile. So if you're gonna file, then you find out there's an error, and now we need to do a correction and we need to refile, you know, that's gonna probably cost you some money.
So we, we encourage you to, to really take the time, look through it. There are implications for things being wrong on these forms, and we're gonna talk a little bit about what's on each schedule. And, and you'll, you'll see. Kind of things that can cause you problems, and we'll kinda talk about that as we go through.
But it's better that you review ahead of time and then file when you're pretty confident in the form and you, you know, you looked at it and you feel that the information is correct. The person filing the form should be a plan fiduciary. So it should be either the plan trustee or the plan administrator, or if, if your provider is gonna file, they will have you sign usually a paper form authorizing them or, or, you're gonna authorize them in some way to actually file it on your behalf.
But it really, if the person doing the filing should either be a trustee or an admin, or someone who is one of those people that's authorized this third party to file it. There are implications to that individual, for filing an incorrect form that individual in a, in a worse case scenario, there could be personal implications to them for filing an incorrect form.
You gotta remember this is you're filing a federal government form, so there's implications to you if you're filing it and it's wrong or it's, you know, you're trying to do something that you're not supposed to be doing, just like with any other federal information. So, You know, be careful with that.
Don't, if someone asks you, "Hey, we're up against a deadline. I know you know nothing about this, but can you just get online here and I'll give you my idea ID and password. Can you do that?" Don't, don't do it because it could drag you into, if there's anything going on, something wrong, it could drag you into that. You could in get implicated in it.
And if you are the plan administrative, plan trustee and it's time to file and you don't know anything about it, again, I would get, get a little bit more time if you can, so that you can ask your record keeper to run you through the form, you know, explain it to you, before you sign, cuz there are implications. I mean, I'm not saying you're gonna go to jail over it, but you know, there are fines and penalties that can accrue. So. You know, make sure that you that you know what you're doing when you, when you file that.
I'm gonna dive into the schedules and we're gonna kind of jump, jump back and forth here a little bit. But-
Karen Hill: Okay.
Kim Moore: You'll notice on the very beginning of the form is some of the general information. So it's gonna list the company name, the plan, name, address, phone number, that's gonna show who was the person that filed the form. So your name will actually appear on there. So it's, you're not gonna be able to hide it.
It's, it's going to show up. It's also going to show the participant counts and it's broken out in a little bit of detail. That information you look at it and kinda like, well, that's just demographic. They just wanna know how big is this plan? How many people are in it? But actually those numbers will drive whether you need an audit or not.
So it's important that you make sure that those numbers are correct, especially if you're getting the counts up close to the hundred mark that that hundred number is kind of the tipping point for whether you're gonna need an audit or not. Audits are expensive. They're very time consuming. You don't wanna do one if you don't need to.
So if you're getting up to the 90, 91, 92, you need to start paying a lot of attention to those numbers cuz one participant can make the difference between whether you need an audit or not. It, it's also going, there's also some little boxes at the top that you wanna make sure are correct. So if it's a short plan year, it doesn't.
Your plan year doesn't go in a calendar. You're setting from January one to 12/31. Maybe you just started your plan and it started July 1st. You wanna make sure that you've got that box marked appropriately. If it's a final return, you wanna make sure that you get that box marked appropriately. Otherwise, the IRS will come after you next year looking for another 5500.
They'll wanna fine you for not filing it when in reality, there maybe no more were due because that was the final return. You just didn't get a box marked.
There's also a spot on the second page where you would mark if the plan name changed, the sponsor changed the address changed the EIN, the tax number associated with the plan, changed. Any of those things that changed from year to year, you wanna make sure that you're careful and you get that marked appropriately. Otherwise, again, it was ABC plan. You changed maybe the EIN from 1 2 34 to 5 6 78. If you don't get those marked appropriately, the IRS and or the DOL could come after you the next year and say, Hey, where's the return for ABC plan or that 1, 2 34 plan
Well, you know that it changed to the second one. They don't know that. So they're, they're looking at the return you filed as a brand new plan. So that's all good, but where's the return for that, you know, your prior, your plan? And it can cause you a lot of administrative back and forth trying to tell 'em, you know, "Hey, here's what happened. It's all fine. We just didn't put that on there." No, no need to go through that. If you just make sure that that's on the form you know, that should take care of it. So I think that's all on the general part of the first form. Karen, you wanna kind of take over schedule A, so that's our first, these are all gonna be lettered schedules. So that's our first schedule.
Karen Hill: Okay. Schedule A is insurance information, and you may or may not have this, this schedule. This usually it's more likely if your service provider is with a life insurance company like, principal life insurance, this one that comes to mind, because it, it, it shows the contract information if you have an annuity contract and you're more likely to have those, if you have insurance companies. And guaranteed contracts also.
So it's, it's gonna, you're gonna see these more, like if they have pulled separate accounts, you might have those with the insurance company. So it's gonna have the detail, the information on those.
Kim Moore: And I, I would say, you know, again, your service provider should know if you need these schedules or not. The ones that are, you may or may not need. And so if it's not there, I'd just kind of just stop and think. Is your provider an insurance company? If it's not, probably you don't need it, and that's probably why it's not there.
Karen Hill: Yeah.
Kim Moore: If you have any questions, I'd go back to your service provider, but they'll usually know what, what needs to be include, you know, if does the schedule need to be included and if it does the information that's needed on the schedule.
But definitely if it's included, you wanna double check and make sure that what's on there makes sense. I don't know from, from my perspective, these are usually not where they make mistakes.
Karen Hill: Mm-hmm.
Kim Moore: This one's usually pretty good, but, you know. I suppose, They, they make mistakes on anything. I suppose. They're, they're human beings too. So the next one's Schedule C.
Karen Hill: Mm-hmm.
Kim Moore: And it's a list of service provider kind of information. So it's, it's gonna talk here about the service providers that you use. And stop and think your service providers could be a record keeper, it could be a custodian, it could be an investment advisor. It could be a fiduciary that you're using to assist you with the plan. So anybody that you're using, To help you administer the plan or provide service to the plan. And it could also be an actuary if you have like a DB plan to find benefit plan. It could also be an accountant, could be shown on there if, if you have to have an audit.
So it kind of depends. There are different schedule or different components to the schedule. And so again, it depends whether you need the schedule and if you need the schedule, which sections might need to be completed just depending on what happened with your plan, the kinds of activity and the kinds of service providers that you use.
The one thing I'd say about this schedule, well, two things. This is a schedule that your service provider that's preparing this form for you, usually they won't have on hand the information needed for this because it's gonna talk about the compensation that was provided to that provider and whether it was like direct compensation, indirect there's different variations on the form. And so they more than likely won't have the information.
And there's a section on there where it'll say, "We were unable to obtain the information, the provider failed to provide the information." You don't want that if you can avoid it. So if you see that on the form, I would go back to your service provider and say, "why did you fill it out this way? What did you, you know, what attempts did you make to try to get the information?"
You know, you don't, you don't really want that, failed to provide. I mean, if, if it's the truth, you, you really tried and you couldn't get it, then by all means put that on there. But you, you know, you don't wanna put that just cuz I just didn't bother to ask that, that could cause questions.
So I, I would just double check that if that shows up. We don't see that a lot, but it, it is on there and it, it could show up. One of the last sections on that form, which may not show up for you and, and in most cases, cause it's probably gonna be blank, but there's a section for termination of accountants or actuaries. So if you used accountant A or actuary a last year. For whatever reason, you decided to go with a different firm this year, you would need to show that, that, that we terminated the use of, and it it'll list like the name, address, other information about the prior provider and then you have to give a reason as to why you're not using them any longer. Even in the case of the provider might come to you and say, "Hey, I'm retiring. I'm not gonna do this anymore." You know, they might work with you to get somebody else to take that over.
So it's not like it's contentious or I fired 'em cuz they did a bad job or anything. It's just that they're not in the business anymore. You still would need to put that on the, on the schedule. You know, if you think that. You got rid of 'em cuz they were too expensive or they didn't do a good job, or, you know, they couldn't, accommodate the schedule that you wanted. What, whatever it might be. It doesn't really matter. You still need to put that information on there.
Karen Hill: Mm-hmm. And sometimes-
Kim Moore: That's still important.
Karen Hill: When we had the merger with Anders, our EIN number changed and that was considered a termination. So all of our clients put in that they terminate and just put an explanation that there was a merger and that's what happened.
Kim Moore: And we have actually gave them the little verbiage to stick on there.
Karen Hill: Yeah.
Kim Moore: And say, you know, you can modify this as you need, but here's, here's an example you can use. So yeah, I don't, I mean, I don't think really that action on the form probably drives anything.
Karen Hill: No.
Kim Moore: I just think it's information to the, especially the DOL they keep track as they do their reviews of the audit, financial statements, opinion letters. About every 10 years they do a review of that and as they do that, they keep track of the number of firms that are doing benefit plan audits. They are decreasing, there are fewer firms offering that as a service. So I think that's another way for them to track, you know, why are people dropping out?
It is a very specialized business. We've talked about this on, on other podcasts. The audits of benefit plans is a very specialized area. Most general auditors are not well-equipped to do them the way that they need to be done, and they don't have the background experience to know how to do it.
They don't know how to handle special situations. So the DOL does not like them doing that work. And so I think. I don't wanna say they're happy when they see firms drop out, but they are encouraging firms that don't have that specialization to not, you know, don't work in this area. There's plenty of other areas that you can work.
So, so I think that's another thing that they, they use it for. The next schedule, believe it or not, schedule D comes right after C. Karen, what, what is Schedule D all about?
Karen Hill: That is, participating plan information for direct filing entities and direct filing entities are... they're not mutual funds.
They're usually consist of your pooled separate accounts and your common collect trust. Basically what that means is when you have a pooled separate account or a common collective trust, you have a part of, of an investment and tho that investment, it, it, they filed their own report. So they are also filing maybe a form 5500 or they're filing some sort of report that it, that's gonna be so that they know, so the DOL knows that you have an interest in this entity.
And usually it's just, it's just a listing of all the different pooled accounts or the common collective trust and the balance that you have in that account, and they have a little I think there's a p that means pooled. I can't remember off the top of my head what the common Co, I'm assuming it's probably C C T.
Kim Moore: It's a C.
Karen Hill: A C, yeah.
Kim Moore: I think it's C.
Karen Hill: Off the top of my head, I can't remember what that is. And it just, it's, you know, just ties like, it's just that shows what the investments that the plan holdsand that these investments have their own reports that they file. That's basically all, it is.
Kim Moore: Yeah, it's probably not something again that you're off the top of your head gonna know much about. But, it is a clue. We use it in our audits to know help us determine what kinds of investments are we dealing with for that particular client. And it's just another kind of piece of information. And you know, we might need to request a copy of the, the audits for those particular statements in certain cases.
So kind of gives us some information. And it helps, I think the DOL and the IRS kind of hook things together. So you've got a filing on one end.
Karen Hill: Mm-hmm.
Kim Moore: This plan is, is reporting using that so they can hook it together if they would ever need to do that. So it's just kind of a referencing kind of schedule.
Schedule G, we don't see this very often. This is another schedule- In fact, I don't know that I've ever seen one of-
Karen Hill: I don't think I have-
Kim Moore: - our clients actually use this-
Karen Hill: I don't think I've ever seen that
Kim Moore: -schedule. Uhuh. It's a, you know, oh, you'd only put it in just like any other tax return. You'd only put it in if you have transactions of this type and you've got numbers, you know, that you need to report. The thing is, I pulled off the instruction, so it's loans are fixed income obligations in default or deemed uncollectible, so that would be some type of loan that you have out, the plan has out, to some other entity. And you know, you're, you're showing that in the next schedule that we're gonna show, or oh, you might have on your financial statement schedule, which is gonna be coming up here on Schedule H, but now you've deemed it that it's uncollectible it, for whatever reason, you're not gonna be able to finish collecting on whatever's outstanding.
We don't see that a lot. And in fact we don't even see those types of investments that much, so.
Karen Hill: Right.
Kim Moore: You know, maybe in a big huge plan you might have something like that. Same thing for the second reason would be leases that are in default or again, deemed done collectible. Same thing if the plan had leases that they owned as an investment and they determined that they were not gonna get repaid. Same thing, you would wanna report that.
Prohibited transactions would show up on here. Again, that's kind of a not good thing to have. So you really are hoping you don't have to file anything on here. If you, if you think it might apply to you and you're not sure, we're not gonna go into what is that in this podcast.
Cuz that could be a very lengthy and it gets kind of complicated discussion. But if you think I'm, I think I might have that and I'm not seeing it in my 5500, I'd go back to your service provider. Because the service provider might not know that you had one of these prohibited transactions. And so if you think you did, I would talk to them and see if that really qualifies and if that needs reported.
So again, I, this one, this is one I would definitely go back to your service provider and ask them for, for help if you, Have one or you don't have one and you think you should, in either case, talk that through with them before you finalize the filing with us, that schedule. So, Karen, the next one's schedule H. This is an important schedule.
Karen Hill: This is the one I know the best because this is the one that relates to the audit and we need to... we always examine all these different numbers that's on Schedule H and compare it to what we find in our audited financial statements. And if we have to reconcile, that might be back.
We, we do a reconciliation to it. So first there's, there's a few different parts to it. Part one is simply it's a schedule of assets and liabilities. And they're gonna break them out into the different types of investments. So if you have some common collective trust, some pooled separate accounts and mutual funds. If you have a benefit responsive contract, if you have cash. There's lots of different types of investments that could potentially be on the schedule, but they're gonna list them out. And it has beginning of the year and end of the year.
So it should, the beginning of the year should equal what was your end of the year on your prior filing. They should. I have seen instances where it doesn't, and that always, I'm not sure why that happens sometimes. It's rare, but I have seen it happen. The liabilities are the amounts that are due to be paid from the plan.
The most common liabilities that we see are when you have failed your compliance testing and you need to refund those excess contributions in order to bring the plan back into compliance. When you have, when you're highly compensated employees have withhold more than what the compliance testing, you know, than the non highly compensated, there's a formula that they, they use to determine that, that we're not gonna get into. But basically that's, that's the usual type of liabilities that we see. In the past, sometimes you would have liabilities for pay benefit payments. But that doesn't happen so much anymore because everything's electronic and everything seems to happen. Everything happens within a day or two. So we don't see, see those types of liabilities anymore.
Part two is the income and expenses. So it's more like your income. It is your income statement. It has the contributions that are split up by type; rollovers are always, cons are considered others, so they're not included in the participant contributions.
They're separated out. And then you have your investment income and it's divided up into dividends. It has dividends and interests. Those are actually separated. We put them together usually on our audit report. But on here, they'll have them separated. Gains and losses, interest from participant loans, that type of thing.
And they get pretty detailed about if you have gains or losses from the mutual funds or if you have gains and losses from a different type of, of investment. But in general, that's what that section is. And then they'll have the expenses, which it consists of your benefit payments, any deemed loans you might have, and any administrative expenses that you have.
And then it all comes down to the net income or loss. And theoretically and usually, and hopefully your net income or your net loss will agree to the difference between your beginning of the year balance and your end of the year balance. That's what the way it's supposed supposed to.
It's the way it's supposed to to be. Sometimes...
Kim Moore: Yeah.
Karen Hill: For whatever...
Kim Moore: Sometimes it doesn't.
Karen Hill: It doesn't.
Kim Moore: We always wonder how does a system not balance?
Karen Hill: Yeah. Because I always thought that it was something that it fit. You put it in and then the number. Yeah. I'm not sure how that happens. I would think that there'd be a warning say, Hey, this is outta balance. But sometimes we see that it doesn't balance.
Then, part three is the accountant's opinion. So you're supposed, you need to put down the type of opinion, and now it's, well, it should be unmodified. That is a change from the past. We used to have a disclaimer, but they, with the, the new, and I'm going to mess up my numbers. The 1 0 3 C-
Kim Moore: 103a3c.
Karen Hill: Three A. See, I knew I missed, I knew I messed it up.
Kim Moore: I know, it's confusing.
Karen Hill: Too, too many With when they changed the audits from limited scope and full scope to the 103a3c audit or non-103a3c audit, they said, no more disclaimer. It's unmodified.
Kim Moore: Mm-hmm.
Karen Hill: So then the first part you pick, you pick unmodified, hopefully. I mean, you can have a disclaimer for another reason, but hopefully it's an unmodified opinion. And then underneath that, you have to state whether it's a 103a3c audit or non-103a3c, or they're, I can't remember exactly, off again, off the top of my, without it sitting in front of me.
Kim Moore: Mm-hmm.
Karen Hill: But then they want to know the name of the accounting, accountant or accounting firm and their EIN number and I think that's it for part three. When you get to part four, those are the compliance test compliance questions. And the very first one is if you had any, and these are the ones I know off the top of my head.
The first, very first one is, did you have any like contributions? And so you-
Kim Moore: Mm-hmm.
Karen Hill: -mark that yes or no. There's one about bond coverage. I can't remember exactly. Maybe that's on I. H? I don't remember. If their-
Kim Moore: S, something like that.
Karen Hill: Yeah. -Asset schedule attached. S. S I'm I'm sorry. Assets schedule, which is the schedule of assets that's gonna be at the end of your, of your report and you're supposed to have that attached as well. If the questions about if the plan's terminating and generally, most of the other questions are always no. Sometimes they might be yes, but you just kept, they go through the questions and just answer them yes or no as applicable.
But those are pretty much the, the big three: the late contributions, your bond coverage, and if you have scheduled assets attached.
Kim Moore: Right. And those questions relate, as does the accountant opinion questions, if you're a large filer and you need an audit. So if you're a small filer and you have these short form, it's an abbreviated, do you still have financial information on there, but it's an abbreviated version, so you might not have as much detail as what Karen went through. And you won't, obviously won't have an audit or opinion because there's no audit for a small plan if it's under the a hundred people.
And we've, we've talked before in other podcast about what, what determines when you need an audit, so if you have questions about that, we're not gonna go into that today, but look at some prior podcasts out there and that we have.
That'll, that'll cover that.
Karen Hill: Yeah. I don't think they break out the investment information on the short form. Oh, I don't think so.
Kim Moore: No. No. And it's even some of the income stuff and the expenses is abbreviated too. The big thing here on the Schedule H, if you're reviewing again, you may not in depth know the numbers, but you should have statements that show you total assets.
And so if you have a $10 million plan, you shouldn't be looking at a form 5500 that says you have a million dollars. Obviously that's, that's wrong. So I, you know, we're not expecting you to get in and audit and, you know, double check every little number and that's off by a couple dollars. But, you know, you just do a reasonableness check and make sure.
I, I would do a math check just to make sure that it does, it does all, you know, tie out the way Karen described. But just gonna look through and make sure it's reasonable. If you need an audit, it should have this scheduled h with the accountant opinion. If it doesn't, that's gonna be a problem for you. So make sure that that's filled out. That's correct.
It shouldn't, I don't think it'll let you file it with it being blank, but if it would, that's bad. You don't want that. And then those compliance questions that Karen talked about, those are really important. That can cause you problems, especially with the D O L.
You know, this is an electronic form. It's gonna go into a database. So if you're saying, you know, I got $10 million in my 401K plan and I have no fidelity bond, which is a federal requirement that you have a fidelity bond, don't let anybody tell you you really don't need one. You do. It's a federal requirement.
They can fine you if you don't have one, and if you don't have one in the the right amount or it's not the right type of bond. So make sure that, that if you have a bond, that you've marked it yes. And, and there's an amount there, then that's the correct amount. Again, if you're not sure, we've done other podcasts about controls and area compliance areas to consider.
So I'd go check that out or ask your service provider. The other thing is if you did some changes to your plan and you might've had a blackout period. That's another question that, that gets asked. So you wanna make sure you answered that correctly. And then the late contribution when that's a big deal. Because if you have late contributions, the DOL is gonna look for that.
They're gonna wanna make sure that you corrected that problem. And you may probably will get a notice, not, not necessarily a notice, that means you're in trouble. You know they're gonna come audit your plan or anything, but they will tell you that. The, one of the best ways to fix that is through the, the voluntary correction program that they have, and they'll give you details about that.
So those are gonna bring attention to your plan. So, I mean, mark it appropriate if you had those things, disclose that you did but just make sure that you're not marking it incorrectly and now you've gotta deal again with the IRS, DOL over something that was just, I marked the form wrong. So, you know, just be careful with that.
A few other question or a few other schedule here. There's a Schedule I that is similar to the Schedule H, but it's for smaller plans, kind of those ones in the middle. So you know, not, I'm not gonna run through that. It similar to what we already talked about.
There's a Schedule M B for multi-employer plans. I'm not gonna go into a lot of detail here because that's a little outside the purview of what we're talking about on this podcast, but if you do have questions about that, you know, give us a call or you can of course ask your service provider about that. Schedule R has to do with retirement plans.
Specific information, we don't see this one very often. It's used for ESOPs, so employee stock option plans, multi-employer plans. Which we don't, we don't deal with a lot, the two of us. The firm does do some multi-payer plans and does some ESOPs. So it, they're out there, but they're not the most prevalent. So again, you know, if you have those, I would talk to your service provider about those.
Instructions: I know we ran through this fairly quickly, so obviously we could have spent two or three hours talking about each item. If you have questions, the, if you go out to the IRS website, just do irs.gov and search 50 form 5500.
The instructions for each form are out there, just like every other tax return. Copies of the form are out there, so if you wanna look at it ahead of time you know, blank copies are out there, so you can take a look at that. Again, I can't stress enough: if you have questions, go back to your service provider.
If you need an audit, you can ask your auditor about the form 5500 too, and your auditor is gonna review the 5500 as a part of the audit. They are required to do that, so you will need to provide them a copy. They're gonna review it, so they're a good, another good source if you have an auditor to ask them questions.
But otherwise, I'd go to the service provider. And, lastly, two things: review the form before you file it. I can't, I know I've said that a lot, but it's really important. You're gonna save yourself some time. Even a small administrative error can end up causing you hours of work trying to get that fixed through the IRS or the DOL.
And you don't want that just because you just didn't take time to look at it. So, just make sure that, that you take a look at it. You know, your service providers can get busy. They're human beings. They can make stupid mistakes, just like we all do. So take a little bit of time and, and look at it. If you have any questions, go back to them before you file it.
And lastly, make sure you file on time. If you file late, you can do two things. You can go through the Delinquent Filer program. We have a podcast about delinquent file program too. And, and we have blog articles out there about delinquent file program as well. So if you have questions about that, not gonna detail it here, but you can use that.
But you will have to pay a penalty. That's automatic. You can't get around it. If you choose not to do that and you just file late, then you are subject to the Department of Labor and the IRS. They can both fine you. And we've seen fines from one of those agencies approaching $50,000 and up just because you filed late.
Now that's not, it was due on July 31st or July 30th, and I filed on, you know, August 2nd. I'm not talking about that. But where it's months late and they see that they, they can cause you to get a letter with a fine. And they can be pretty, pretty pricey fines. So you know, do not file late unless you absolutely can't help it.
It, it can be worse than the time consuming thing to fix administrative errors. It can be very costly. So, so don't do that. Make sure you leave time in your schedule to to review the forms, make sure they're correct and get them filed on time. With that I think we're gonna wrap up for today.
Again, my email is letter k m o o r e at Anders, a n d e r s cpa.com. So it's Anders with an s cpa.com. Feel free to reach out to me if you have any questions on today's podcast. Ideas for a future podcast or just questions in general. Or maybe you just found out you need an audit. It's that time of year where folks are finding out that, you know, I always say you won the lottery and now you need a 401k plan audit.
Or you lost the lottery and you need an audit. So we'd be happy to get you a quote for that audit, talk you through the procedures, and kind of work with you to get that started if need be. With that, thanks Karen. Any final closing thoughts you got on Form 5500? Okay. If not, we'll, we'll wrap up for today.
Wanna thank everybody for your, for your time today and as always, don't hesitate to reach out if you have any questions. Thank you.
Narrator: Enjoy this podcast? Visit our website at anderscpa.com/401k to get more tips and strategies for achieving 401k audit success. We're here to be a resource with ever-changing rules and regulations.