| Issues and Answers | ||
| Can an employee take leave to care for an injured veteran? | |||
|
| |||
|
| Test Your Human Resources Knowledge | ||
|
| Labor Law Journal Submissions | ||
|
| Human Resources Links | ||
|
| Labor Arbitrators' Awards and Biographies | ||
CCH's Law, Explanation and Analysis of Health Care Reform Legislation
Get full explanation and analysis of every aspect of health care reform legislation. These legislative changes will imminently impact thousands of employers, private insurance providers, and the Medicare and Medicaid programs. Pre-order today and save $20!
from Spencer’s Benefits Reports: The deadline for trustee-directed defined contribution plans’ annual benefits statements should be no later than the deadline for filing the Form 5500, according to recommendations made to Department of Labor’s Employee Benefits Security Administration (EBSA) by a variety of business groups.
In comments submitted on February 15 to the EBSA, the American Society of Pension Professionals and Actuaries (ASPPA), the Small Business Council of America (SBCA), the U.S. Chamber of Commerce, and the National Federation of Independent Business (NFIB) addressed the deadline for furnishing benefit statements to participants in defined contribution plans. Specifically, the organizations address the EBSA’s guidance on the issue contained in Field Assistance Bulletin (FAB) 2006-03.
The Pension Protection Act of 2006 (PPA) requires plans to provide benefit statements to participants and beneficiaries. These statements generally must be provided: (i) quarterly for participant-directed defined contribution plans; (ii) annually for all other defined contribution plans; and (iii) once every three years for defined benefit plans. In FAB 2006-03, the EBSA stated that plans must provide benefit statements within 45 days after the end of the relevant period to constitute good faith compliance.
In their comments, the organizations initially note, “There are currently thousands of defined contribution plans where the investment decisions are trustee-directed with no participant direction. Assets in these trustee-directed defined contribution plans must be valued at least annually. The earnings (or losses) are then allocated to participants’ accounts as of the end of the plan year. A substantial portion of these trustee-directed plans are maintained by small businesses for their employees. The vast majority of participants in trustee-directed defined contribution plans receive annual benefit statements. Those statements, however, are typically prepared for participants at the same time as the Form 5500 and the summary annual report. There are several reasons why annual benefits statements are not prepared until these two reports are completed.”
According to the organizations, those reasons include the following:
Allocation of earnings. “Many trustee-directed defined contribution plans are profit-sharing plans with a 401(k) feature,” the organizations note. “A significant number of these plans will allocate plan investment earnings for the plan year based on the value of account balances as of the first day of plan year plus contributions using a half-year convention (i.e., based on one-half of the elective deferrals made and one-half of the profit-sharing contribution accrued on behalf of the participants for the year). Thus, for example, the plan investment earnings allocable to a participant’s account for the 2006 plan year will be based on the beginning account balance plus one-half of elective deferrals contributed for 2006 and one-half of the 2006 profit-sharing contribution allocable to the participant’s account.
“In virtually all cases, the employer will not determine or contribute the profit-sharing contribution until the business tax return is completed. In many cases, with extensions, the business tax return will not occur until the following September for a calendar-year plan. In addition, in the case of a plan of a partnership, IRS rules limit the amount of the contribution based on the amount of earned income, which would also not be determined until the return is completed the following September. Thus, for these plans, it is simply not possible to allocate earnings and complete the tax return until well beyond the 45-day period proposed in the FAB.”
Asset valuation. According to the organizations, “Trustee-directed plans are often invested in assets that are not publicly traded and require an independent appraisal. Appraisals of such nonpublicly traded assets are almost never completed within 45 days after the plan year; appraisals are typically completed a significant number of months after the end of the plan year.”
Expenses. “In light of the issues regarding plan asset valuation and the timing of contributions, plan costs would be materially affected if annual benefit statements were required within 45 days after the end of the plan year,” the organizations assert. “Assuming it is even possible, the plan might have to pay for expensive special asset appraisals for nonpublicly traded assets. Further, accounting costs, again assuming all data even being available, would substantially increase for the plan sponsor if it were necessary to meet the suggested deadline. Practitioners have estimated that these additional costs could increase annual plan expenses, by as much as 25%, which would likely be borne by plan participants.”
In their comments, ASPPA, the SBCA, the Chamber, and the NFIB recommend that the deadline for trustee-directed defined contribution plans’ annual benefits statements be no later than the deadline (with extensions) for filing the Form 5500 (e.g., October 15, in the case of a calendar-year plan). According to the organizations, “The significant challenges and added costs associated with a 45-day deadline for trustee-directed defined contribution plans warrant an extended deadline given that the trustee has assumed responsibility for investing plan assets and cannot prepare accurate benefit statements until certain financial reporting is completed. The deadline proposed by ASPPA, SBCA, the Chamber, and NFIB is also consistent with the extended deadline for the new funding notice for small business defined benefit plans, as required by section 501 of PPA.”
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
Visit our News Library to read more news stories.
©2009, CCH. All Rights Reserved.
