My client is a one-life group that has a calendar year split-funded defined benefit plan. The Form 5500-EZ was due for 2002, and I assume he filed the one that I sent him. I advised him in early 2003 of the (Life Insurance) and the investment fund contribution for PYR 12/31/2002. That contribution would obviously have been due no later than 9/15/2003.

I certified his 2002 Schedule B showing that the 2002 total contrib had been made, on the basis of a letter that he sent me to that effect.

What do I do now? Prepare an amended 5500-EZ (with amended Schedule B) showing the accumulated funding deficiency? To make things worse, he called me today (September 15, 2004) to let me know that he could not make his pension contribution for PYE 12/31/2003. At least he has "owned up" to this one now.

What are the penalties he faces for failure to meet minimum standards for 2002? For 2003? Does his accumulated funding deficiency through 2003 (on which the penalty is figured) include the A.F.D. for 2002?

Finally, has anyone ever had this happen to them before? What does the IRS say to the enrolled actuary? Help!

I believe that an amended 2002 filing is in order. Also Form 5330 to pay the 10% tax (plus possible penalties and interest) on the 2002 funding deficiency.

A Form 5330 for the 2003 funding deficience is also necessary. It is my understanding that the tax is based on the accumulated funding deficiency. (2002 + 2003)

My favorite similar scenario was when we actually received a copy of the check that was to be deposited as the basis for completing the filing. The check was placed in a drawer and forgotten about for over 10 months.

What to do? Slap him and send him to bed without dinner.

CYA.

Tell him his penalties today so that he knows the extent of the problem.

He's still got until midnight. The filings will generate a delinquincy notice then he'll have a short amount of time before the penalty becomes 100%.

What do you mean by you "certified his Schedule B"? I assume that you are not an actuary, else you would know the funding deficiency penalties.

I was wondering about that also. Please be specific about your answer.

The first penalty is 10% (no waiver possible), and it jumps to 100% if not cured within a year. Thus Andy's comment about midnight.

But once the client receives the IRS notice of deficiency for the 100% second tier tax, he has 90 days from the date of that notice to correct the deficiency and have the 100% tax abated. At least as I understand it. Have I got that right? I frankly find the statutory language and cross referencing between 4971, 4961, and 4963(e)(1) a tad confusing.

To answer your question about my being an actuary, I left the field after TRA '86 until 1999. My enrollment was reinstated in 2003. When I last was a continuous practitioner, the Schedule B was 2 pages long. Imagine what this world looks like to me now!

Understood. Must be quite difficult.

One of the benefits of this message board is the ability to ask questions that may be fundamental or even obvious to many. As we all know, this field is very arcane and nobody knows everything. For an actuary to ask a question about the funding deficiency is indeed fundamental, but there should be no embarrassment or shame. Fundamental issues come up for me all the time that require review and inquiry. Our responses to questions like this should be forthcoming and without reprimand. I would urge all of us to hold back our arrogance.