A growing trend in the healthcare industry is the consolidation of hospitals, health systems, and physician practices to create larger health systems. This consolidation is occurring through mergers and acquisitions, joint venture arrangements, and other types of affiliation. This trend is due to a variety of factors, including the desire to create a larger service footprint, to address challenging financial situations, or to contend with increasingly burdensome regulatory requirements.
An indirect effect of these transactions is potential changes to sponsored employee retirement plans. Whether the retirement plan is a defined benefit pension plan or a defined contribution [i.e. 401(k) or 403(b) plan], the plans are often impacted in a variety of ways.
One specific issue may be the changing of a plan’s year-end date to match the year-end date of the newly created entity. There are certain Department of Labor and Internal Revenue Service provisions to be followed when changing a year-end for a retirement plan, and many questions may arise regarding the filing of Form 5500 and audited financial statements from an independent qualified public accountant (IQPA). Audited financial statements from an IQPA must be attached to the filing of Form 5500 if the plan is considered a large plan (generally plans with 100 or more participants as of the beginning of the plan year) pursuant to the Employees Retirement Income Security Act of 1974.
If a plan changes its year-end date, the plan would be required to file Form 5500 and applicable schedules for a short plan year. According to 29 CFR 2520.104-50, a “short year is a plan year of seven or fewer months’ duration, which occurs in the event that the annual date on which the plan year begins is changed.” The deadline to file the short plan year’s Form 5500 is by the last day of the seventh calendar month after the short plan year ends, or the extended due date if approved.
The audited financial statements are not required to be attached to the short plan year’s Form 5500 filing if certain qualifications are met. These qualifications include: 1) the short plan year must consist of seven or fewer months, 2) an attachment explaining why the plan has a short year must be included, and 3) audited financial statements from an IQPA for both the short plan year and the following complete year are required to be included with the next consecutive year’s Form 5500 filing.
If you have questions about employee benefit plans contact the expert listed below at PYA, (800) 270-9629.