Will your ESOP require a plan audit for Form 5500 this year? If so, there is much to do in the next few months!
A plan audit is required if the number of ESOP Participants reported on the Form 5500 is 100 or greater, as of the beginning of the Plan Year. There are two exceptions to the general requirements:
- The 80-120 Participant Rule. If the ESOP had fewer than 100 participants in the preceding year and between 80 and 120 participants in the year under review, then the Plan Administrator may choose to file in the same manner as the preceding year.
- The Short Plan Year Rule. If the plan had a short plan year of seven months or less for either the prior plan year or the plan year being reported, the filer may elect to defer filing the accountant’s report.
If a plan audit is required, the Plan Administrator must ensure that all required information is received timely in order to file the Form 5500. The ESOP Valuation Appraiser must have the annual stock valued in order for the ESOP Third Party Administrator (TPA) to complete the annual allocation report. The allocation report must be finalized for the auditor to complete the Financial Attachments. Finally, all of the information is provided to the TPA to prepare the Form 5500 and applicable Schedules.
The Form 5500, appropriate schedules and audited plan financial statements must be filed no later than July 31. A Plan Administrator timeline for completion of all working parts is provided below:
| January 31 | Determine if an audit will be required and engage a CPA. |
| Prior to March 31 | Determine the ESOP funding for the prior year and the amounts to be contributed in cash and stock. The Board approves the contributions and communicates the amount to the ERISA Attorney, CPA, TPA and Appraiser. |
| March 31 | Complete and send the census data and financial information to your TPA. |
| April-May | Meet with the Appraiser to review the draft appraisal report. |
| April-May | Schedule the plan audit. |
| April-June | Wrap up the final appraisal, plan audit, and work with the TPA to complete the reports and Form 5500. |
If the Form 5500 will not be completed by July 31, the Form 5558 (an extension for filing) must be filed to extend the due date.
Please contact your Watkins Ross administrator if you have questions regarding your ESOP. If you have someone in your personal network that has questions or is interested in establishing an ESOP, please let us know.
