April 26, 2010David O. Reyes CPA - Benefits Tax

Compliance Pam Lebold CPA - Risk Management

Greater Transparency

More Disclosure

Accountability

Form 5500 Overview◦ What plans must file◦ 5500 and required Schedules

Changes affecting the 2009 Form 5500◦ Changes to the 2009 Forms◦ 403(b) Plan expanded reporting requirements ◦ New Electronic Filing Requirements

457/Deferred Compensation Plan Compliance

Excess Benefit Transactions

Who must file? Pension and Welfare Benefit Plans subject

to ERISA Pension Plans-401(k), 403(b), Pension, Profit

Sharing Welfare Benefit-Medical, Dental, Life

Insurance, Disability etc. Types of Welfare Benefit plans-Funded

(Trust) and Unfunded (Insurance/Self Insured)

Most Welfare Benefit plans are Insured “unfunded arrangements”.

Unfunded plans have filing exemption <100 Unfunded plans >100 participants must file Other plans exempt from filing-SIMPLE, SEP,

Church Plans, Government Plans Due date is last day of the 7th month after

end of plan year. 2 ½ month extension available, Form 5558.

Form 5500 and Schedules ◦ Schedules filed are dependent of type of plan,

size of plan, and plan features◦ Large plan vs. Small plan◦ Most Common Schedules for all plans

Schedule A- Insurance Schedule D-Investments in Pooled or Collective

Funds Schedule I (Small Plan)- Balance Sheet and Income

Statement, Questions on plan operations Schedule R –Distribution reporting, plan funding and

coverage information

Schedules only for large plans◦ Schedule C- Service providers paid > $5,000◦ Schedule G-Reporting loans and prohibited

transactions◦ Schedule H-Income statement, balance sheet,

accountants opinion, questions about the plan◦ The accountants opinion is the most significant

difference between a large and small plan Form 5500 and Schedules open to public

inspection

Significant penalties may be assessed for late filings◦ DOL $1,100/day◦ IRS $25/day capped at $15,000 per year

Delinquent Filer Voluntary Compliance Program is available from the DOL◦ Penalty reduced to $10/day◦ Per plan cap - multiple filings◦ Avoids both DOL and IRS full penalties

Changes to some of the Schedules Expanded filing requirements for 403(b)

Plans beginning with the 2009 filing New Electronic Filing requirements effective

for plan years beginning in 2009

Continues to be limited to large plan filers, and the $5,000 reporting threshold was retained

Requires direct compensation paid by the plan to be reported on a separate line from indirect compensation received from sources other than the plan or plan sponsor

Additional codes added to types of services provided

Alternative reporting option: Indirect compensation New Part II: Identify each service provider that

failed or refused to provide the information necessary to complete Part I

Form 5500◦ New pension plan characteristics codes◦ Question on number of contributing employers◦ Optional line for principal preparer has been deleted

Schedule A ◦ Identify insurers that fail to supply information

Schedule H◦ Large plan failures to pay benefits due◦ Schedule of delinquent participant contributions – Questions on blackout compliance◦ Reporting of mutual fund dividends

Schedule I◦ Small plan failures to pay benefits due◦ Questions on blackout compliance◦ Separate disclosure of fees paid to administrative service

providers

Schedule SSA◦ No longer required beginning with 2009 filing◦ Replaced with IRS Form 8955-SSA

Attachments Under EFAST 2◦ Accountants opinions/financial statements◦ Actuary attachments to Schedule SB◦ Attached to the 5500 in pdf or plain text files (ASCII)

On Nov. 16, 2007, the Department of Labor (DOL) issued “Annual Reporting and Disclosure; Revision of Annual Information Return/Reports; Final Rule and Notice”

The exemption in section 2520.104-4(b)(3) is being eliminated, with the result that 403(b) plans subject to Title 1 will now be treated the same under the regulations as any other Title I pension plan for purposes of the annual report requirement under Title I of ERISA.

Effective for 2009 filings, ERISA covered 403(b)’s are required to file a complete 5500

Must complete all the same schedules as a 401(k) plan

Large plans will require Schedule H and accountants’ opinion with financial statements

FAB 2009-2, DOL ruling which allows plan auditor to exclude certain plan participants and their investments for 5500 and audit purposes

www.dol.gov/ebsa/403b.html

EFAST2 replaces EFAST1 Electronic filing becomes mandatory with EFAST2 for

plan years beginning on or after 1/1/09 ◦ Required for retirement and welfare plans◦ Exception: Form 5500-EZ electronic filing not available◦ Form 5500-EZ may elect to file a Form 5500-SF and

electronically file◦ Also applies to 403(b) plans, except those not subject to Title I

of ERISA Any plan which has a due date before 1/1/10 will

automatically have an extension until 90 days following the date on which the Form 5500 is available for filing electronically (i.e. 3/31/10)◦ Short plan-years are encouraged to wait and file electronically,

but it is not required – May file utilizing the prior year’s form and mail the forms

Software: Three options◦ A private, Web-based system◦ A third-party software application◦ DOL’s Web-based system (IFILE)

Registration with EFAST2◦ Began 1/2/2010◦ Must register if using IFILE or third-party software◦ www.efast.dol.gov and click “Register”◦ If you are registered for EFAST1, you will need to register again for EFAST2◦ All persons who touch a Form 5500 in any way, including signers, will need to register with EFAST2 and obtain a user ID and PIN◦ DOL will limit one set of log-in credentials per e-mail

address – can’t obtain signature authority for the client

When registering, disclose what user types(s) you are. The type selected affects the available menu.◦ Filing author (return preparer)◦ Filing signer (person who signs the return) – individuals,

not plan sponsors/entities

– Schedule author (schedule-only preparer – i.e. actuary and

Schedule MB or SB) – Transmitter (party who transmits the electronic return) – Third-party software developer

IFILE – the basics of how it works◦ Complete forms on screen by navigating through each section of

each form◦ Add forms by clicking on the schedule name/letter from a menu

and completing the form ◦ Add attachments such as the accountant’s opinion/report

Accountant’s opinion/report MUST be in PDF format only, as it requires a signature

Other attachments can be PDF or text files 2GB limit on the size of the electronic file; large attachments will not be

able to be transmitted Once preparation is complete, associate a

signer◦ Provide signer’s e-mail address◦ Program searches and matches the e-mail address to those

registered with EFAST2◦ If the signer is registered, an e-mail will be generated informing

the signer that a return is awaiting their signature◦ If the signer is not registered or if the e-mail address entered is

incorrect, an error message will be displayed

• Other items◦ Plan sponsor must maintain a paper copy of the

electronic return, complete with original signatures◦ Extension procedures will not change (although Form

5558 will no longer be required to be attached to the Form 5500)

◦ Amending pre-2009 forms or filing pre-2009 forms late under DFVC program must do so electronically DFVC - Use current year forms and indicate the dates If amending, you must resubmit the Form 5500 and all of

the schedules included with the original filing (even those that remain unchanged)

Must reference the original acknowledgment ID with the amended filing

Two types - 457(b) and 457(f) Only available to nonprofit organizations Focus on 457(b) plans Two common issues

◦ Proper timing of FICA withholding◦ Failure to file proper Top Hat filing

IRC Section 4958 Penalty on the individual for non-fair market

value transactions Most common: unreasonable compensation Individuals are “disqualified persons” or

insiders

1st tier penalty: 25% of the excess benefit

2nd tier penalty: 200% if correction not made

Penalty cannot be paid by organization

How to correct excess benefit

College President’s comp & benefits = $400,000

Assertion that reasonable compensation = $300,000

Excess benefit = $100,000

1st tier penalty = $25,000

Correction = pay $100,000 back to College

Shifts burden of proof to IRS 3 requirements:

1. Persons making decision are independent2. Comparability data3. Contemporaneous documentation

990 questions