The DOL Update at the AICPA Conference
At the AICPA National Conference, the DOL Update was presented by Marcus Aron, the Chief of the Division of Accounting Services at the Office of the Chief Accountant (OCA) of the Employee Benefit Security Administration (EBSA), with an impromptu guest appearance from Scott Albert, who heads up the Division of Reporting and Compliance, which oversees the completeness, accuracy and timeliness of Form 5500 filings. During his presentation, Marcus addressed the controversial topic of how to file a Form 5500 when the audit cannot be completed by the due date.
Delinquent vs. Deficient Forms 5500
Marcus Aron emphasized that it is important to understand the difference between a delinquent filing and a deficient filing. A delinquent filing is a failure to file timely. A deficient filing is filed timely, but it is incomplete or incorrect.
Common examples of deficient filings include:
- missing audited financial statements and audit report
- GAAP or GAAS deficiencies in the audit report
- Inclusion of Form 8955-SSA with PII information
- Improper reporting of delinquent contributions
Even if it’s stating the obvious, Marcus Aron took the time to reiterate that deficient filings, by definition, have been FILED. Hence, they cannot be subject to failure-to-file penalties.
If You Can’t File the 5500 You Love, File the One you Have
The most common deficient filing involves the failure to attach an audited financial statement. There is no official guidance from the Department of Labor regarding what to do when the audit cannot be completed by the due date of Form 5500. However, Marcus Aron indicated that the recommendation from their office, including Mike Auerbach and Scott Albert is that between the two choices of filing nothing until there is a complete filing, and filing timely without the audit report and amending the filing to attach the audit report when the audited financial statements are ready, they would recommend to file a Form 5500 as accurately as possible and amending later to attach the audited financial statements.
Forms 5500 that are not filed are delinquent filings. Practitioners who refuse to submit incomplete filings as described above must then file the delinquent Form 5500 through the Delinquent Filer Voluntary Compliance Program (DFVC), if the plan sponsor has not received a failure to file notice from the DOL. Marcus Aron stated they do not recommend choosing this method, explaining that from the Department’s standpoint, they would rather get as much information as possible in on a timely basis, and emphasizing that if “Scott Albert identifies you before you can make a filing, then you can’t use the delinquent filer program, but incomplete filers are able to correct the filings”. “If we identify a delinquent filing and send an enforcement notice out before you complete a DFVC filing, the penalties are much higher than the deficient filing penalties.” Marcus acknowledged that the DFVCP is a choice some practitioners make, because the regulations might sound like incomplete filings are rejected as if they were not filed, but he explained that they don’t abide by that and reassured that their office gives you credit if you file. “Even if the deficiencies result in enforcement action, it’s different than having done nothing.”
A conference participant asked how long it takes Scott to send deficient filing notices when the audit report is not attached, and it prompted a cameo appearance from Scott, who was eavesdropping in the office next door. The conference took place in the first week of December and Scott said he had just sent the missing-audit letters, which means it took him six weeks to send the letters out.
Our Experience with Deficient Filings
We always complete our ongoing clients by the October 15th deadline, but we also embrace new clients who procrastinated. Every year, several new clients engage us in October to complete an audit they had successfully failed to wish away. Like Marcus Aron said, there is no guidance indicating that attaching a place holder where the audit report should be is an acceptable mechanism to obtain an additional extension, but it has been an experience that amending a deficient filing as soon as the audit is ready, shortly after the deadline. We have always succeeded with the incomplete filing approach, but when the Form 5500 preparers have an internal policy not to file with a placeholder, we are happy to assist with the DFVCP approach as well. I hope that Marcus Aron’s wisdom and advice will dispel the myth that the DFVCP is preferable over the deficient filer approach, but changing corporate policies can be like trying to stop a train, so we acquiesce when the 5500 preparers leave no other option. The important goal is to achieve compliance before getting correspondence from the DOL. Marcus explained the progression of their enforcement process and how we can help our clients avoid penalties.
Reporting Compliance Enforcement Process
Electronic Inquiry Letters – sent to plan sponsors with missing or incomplete filings. Specifically, when there is a filing missing the audit report, they request an amended filing that includes the audit report before they take further action. The inquiry letter is not an enforcement action. Lack of response will generate a……
Notice of Rejection – The 45-day Notice of Rejection is an enforcement action that gives the filer 45 days to correct a deficiency in the filing, like a missing schedule or a missing audit, or an erroneously attached Form 8955-SSA (discussed later). If the needed corrections are made within the 45-day period, there is no penalty. Case closed. If no correction is made during the 45-day period, then the case goes to the next level, which is:
Notice of Intent to Assess a Penalty – 30 days to respond. The notice basically states that there was no response to the Notice of Rejection, so the Department intends to assess a penalty to the plan administrator. The penalty listed is the intended amount, not the final amount, so the assessment can grow if noncompliance continues, or it can be negotiated if the client responds and complies. If the sticker shock of the intended amount causes paralysis and inaction, then the intended amount becomes the final penalty amount. Failure to respond effectively waives the right to proceed with negotiations.
Notice of Determination – 30 days to respond. The Notice of Determination informs the filer that the Department has reviewed the response to the Notice of Intent to Assess a Penalty, and it presents the amount of the intended penalty that has been abated along with the final penalty. Partial abatement of the intended penalty is generally only available if there has been a correction. A response to the Notice of Determination opens the door to an appeal to an Administrative Law Judge if the filer wants to appeal the penalty amount. Lack of response leaves only two choices: a lump-sum payment or a payment plan.
Final Order- That’s the end.
Marcus encouraged practitioners to call him on his cell phone number (202-657-2905) or email him at Aron.Marcus@dol.gov to discuss any correspondence from their office.
Other Form 5500 Common Errors
Marcus warned against filing Form 8955-SSA with the Form 5500. Form 8955-SSA is used by the Social Security Administration to alert retiring participants to a benefit they might have. As such, the form has Personal Identifiable Information (PII) that should not be on the internet as part of a Form 5500 filing. To protect the PII, EBSA’s system detects that PII has been included with the Form 5500 filing and immediately deletes ALL attachments, including the audited financial statements. Scott Albert has indicated that he wants to change behavior by rejecting Forms 5500 that erroneously attach Form 8955-SSA.
We have noticed that some plan sponsors also think that the letter to those charged with governance should be attached to the Form 5500. Although the letter doesn’t normally have PII, no client should want the audit findings to become public information. To prevent clients from attaching PII or their dirty laundry to the Form 5500, in the few cases when we prepare the Form 5500 for our audit clients, we do not provide the Form 8955-SSA, or the letter to those charged with governance, at the same time that we provide the Form 5500 and the audited financial statements. That way, we eliminate the opportunity for misunderstandings and mistakes.
Experience Matters
Marcus reported that the Department’s study of audit quality once again found a correlation between the size of a CPA firm’s retirement plan audit practice and the incidence of errors. The breakdown of # of audits for their last audit quality study is as follows:
AUDITOR UNIVERSE(2022 Form 5500 Database) |
||||
| Strata | Plans Audited | Assets Audited | Participants Audited | Number of CPA Firms |
| 1-2 Plans | 1,487 | $23.50 B | .710 M | 1,103 |
| 3-5 Plans | 2,706 | $59,67 B | 1.96 M | 692 |
| 6-24 Plans | 12,538 | $386.37 B | 9.08 M | 1,053 |
| 25-99 Plans | 19,992 | $836.83 B | 17.30 M | 420 |
| 100-749 Plans | 27,632 | $5.42 T | 85.89 M | 118 |
| 749+ Plans | 24,250 | $3.41 T | 52.65 M | 16 |
| Total | 88,605 | $10.15 T | 167.62 M | 3,402 |
During 2024, BL&S performed 145 audits for 133 clients. In my 30 years with the firm, we have grown to be in the top 4% of firms that audit plans nationwide, with five people who specialize in EBP audits, spending 100% of their time in this area. We have passed numerous peer reviews and several DOL workpaper reviews and we hope to keep growing, although achieving the next stratum of 749 plans is not on our list of short-term or long-term goals. We share this passion and this little success story and hope to continue helping our clients stay compliant by applying the wisdom and spreading the knowledge of what we learn from the regulators and industry experts.
