Important Changes to Form 5500
As we are nearing the end of May, many service providers are providing 5500 Forms to Plans for their review. We have provided separate blog posts relating to Form 5500 and the sections included in the overall 5500 packages but we wanted to make you aware of an important change to one section of the form for 2020 Plan filings.
Schedule H Required
If you are a large plan (generally if you have more than 100 eligible participants you will fill into this category), you will be required to include a Schedule H with your Form 5500. Schedule H is used to document the financial activity for the Plan during the year. Also on this schedule are some compliance questions (Part IV) and what we will be discussing in this blog post, Part III, Accountant’s Opinion section. This is not a new section for the Form and questions 3c and 3d are not different from previous forms. However, questions 3a and 3b are slightly different and require some review before you complete the final filing on the EFAST System.
New Audit Standard Introduction
First, a bit of background: new audit standards (specifically, Statement of Auditing Standard 136) were introduced which changed the auditor’s opinion letter that is required for large plan filers. These standards were to be effective/required for 2020 Plan years originally. As the IRS and Department of Labor worked to review Form 5500, they changed the Accountant Opinion section so that it would line up with the new standards.
However, due to the Covid pandemic, auditors were allowed to delay the implementation of this new standard until 2022 (for 2021 Plan year audits). Since the standard has been delayed, the new form does not easily fit with the actual opinions that are being issued for 2020 plan audits.
We recommend Plan Sponsors discuss with their auditors their plans for adopting SAS 136. If the auditor is early adopting the standard, the Plan Sponsor and their provider can utilize the Form 5500 instructions for completing the form and no assessment is required. The form should reflect the actual opinion issued. The issues come into play when the auditor does not early adopt SAS 136, which is the case for most audit firms.
Without early adoption, most audit opinions will remain disclaimers of opinions due to the limited scope exemption. In these cases, unofficial recommendations from the Department of Labor are to mark Section III questions 3a and 3b as “Unmodified” with box b1 checked. From the DOL perspective, this best represents the disclaimer opinion due to the limited scope exemption. They also recognize, using the “Disclaimer” opinion box may also be utilized.
This guidance is subject to change as it is not the final guidance from the DOL and we recommend Plan Sponsors discuss completion of the Form 5500 with their auditor before finalizing the form to ensure they are best reflecting the audit opinion that will be included in the attachment with their Form 5500 when it is filed.
At Summit CPA we specialize in retirement plan audits. If you would like to discuss our audit process in more detail or need an audit, contact our office at (866) 497-9761 to schedule an appointment. We can help you navigate the world of the 401(k) audit as proficiently as possible. We also offer off-site assistance and flat-fee pricing so there are no surprises when the job is complete.