5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
EBSA, the PBGC, and the IRS have proposed revisions to the Form 5500 Annual Return/Report forms, including adding a proposed new Short Form 5500. These changes are motivated, in part, by the need to facilitate the establishment of a wholly electronic filing system for the receipt of the Form 5500. The proposed form revisions, upon adoption, would apply for the reporting year for which the electronic filing requirement is implemented (see story above). Besides describing the Form 5500 changes in detail, the agencies have included several Appendices containing facsimiles of Form 5500 and the new Short Form 5500. In a separate release, the DOL is proposing changes to the reporting regulations under ERISA in order to accommodate some of the proposed revisions to the forms.
A key part of the proposed forms revision is the establishment of a new 2-page Form 5500—SF Annual Return/Report (Short Form or Short Form 5500) as a new simplified report for certain small plans. This form would apply to small plans with fewer than 100 participants that have secure, easy to value investment portfolios. According to the government agencies, these small plans present reduced risks for their participants and beneficiaries, and, as a result, an abbreviated annual report could be used without compromising the disclosure needs of participants and beneficiaries. The proposal would not eliminate the existing simplified reporting options for small plans but rather would add the Short Form 5500 as another simplified reporting option for eligible small plans. As proposed, a pension or welfare plan would be eligible to file the Short Form if the plan:
covers fewer than 100 participants or would be eligible to file as a small plan under the 80 to 100 rule in ERISA Reg. §2520.103-1(d);
is eligible for the small plan audit waiver under ERISA Reg. §2520.104-46;
holds no employer securities; and
has 100 percent of its assets in investments that have a readily ascertainable market value.
According to the agencies, multiemployer plans would not be eligible to file the Short Form. Short Form filers would be required to provide:
basic plan and plan sponsor identifying information;
abbreviated participant count data, with defined contribution plan filers providing the number of participants with account balances at the end of the plan year;
information on plan features, such as plan type and manner of providing benefits, using delineated codes;
an abbreviated statement of assets of liabilities and income and expenses; and
responses to yes/no/amount compliance questions, such as identification of any delinquent participant contributions and total participant loan balances at the end of the plan year.
According to the agencies, under this proposal, most Short Form filers would not be required to file any schedules, although defined benefit pension plans would continue to be required to file Schedule B, where applicable. Also, small plans that are ineligible to file the Short Form would still be able to file simplified reports, as under the current system.
Under the proposal, the Form 5500 will no longer include any of the schedules from the current 5500 that are required only for the IRS. As part of the move to an all-electronic filing system for the 5500 forms, the portions of the Form 5500 required to satisfy filing obligations imposed by the Code, but not required under ERISA, had to be removed.
As a result, under the proposal, Schedules E (ESOP Annual Information), P (Annual Return of Fiduciary of Employee Benefit Trust), and SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits) would no longer be required to be filed as part of Form 5500. Also, the IRS has independently eliminated the Schedule P from the 2006 Form 5500 in anticipation of a move to a wholly electronic filing environment. Further, the DOL is proposing to move the three ESOP information questions that were formerly on Schedule E to Schedule R.
The DOL has determined that it is appropriate to modify the Schedule C reporting requirements to ensure that plan officials obtain the information they need to assess the reasonableness of compensation paid for services rendered to the plan. As proposed, Schedule C would consist of three parts. Part I of Schedule C would require the identification of each person who received, either directly or indirectly, $5,000 or more in total compensation (money or anything else of value) in connection with services rendered to the plan or their position with the plan during the plan year. This requirement would no longer be limited to the 40 highest paid service providers.
Filers would also have to indicate, for all service providers, whether the service provider received any compensation attributable to the person's relationship with, or services provided to the plan, from a party other than the plan or plan sponsor. Thus, if a fiduciary or anyone on a list of service providers received, directly or indirectly, $5,000 or more in total compensation and also received more than $1,000 in compensation from a person other than the plan or plan sponsor, then the Schedule C would have to provide information identifying the payor of the compensation, the relationship or services provided to the plan by the payor, the amount paid, and the nature of the compensation.
A new Part II to Schedule C would provide a place for plan administrators to identify each fiduciary or service provider that failed or refused to provide the information necessary to complete Part I of Schedule C.
Further, the proposed Schedule C requirements would raise the threshold for reporting on nonfiduciary employees of the plan from the current $1,000 per month to $25,000 per year. Also, the DOL is proposing to update the codes for identifying services, expanding some codes and modifying others to reflect changes in the plan services industry and to provide grater clarity. The proposal would also change the Schedule C instructions to make it clear that, except to the extent not otherwise excluded, compensation in connection with services rendered to the plan or their position with the plan includes "float" or similar earnings on plan assets or deposits that are retained by a service provider as part of its compensation package. Other changes address reportable compensation relating to brokerage commissions as well as payments for bundled services.
The proposed Schedule C, Part III, would be the current Part II of Schedule C, used for reporting termination information on accountants and enrolled actuaries and would not be changed.
403(b) plans that are subject to Title I of ERISA generally have had limited reporting obligations under Form 5500. However, the DOL indicates that the IRS has found a number of Code compliance issues with 403(b) plans and the DOL itself has found ERISA violations in a high percentage of its 403(b) investigations, particularly as to improper handling of employee contributions.
As a result, the DOL concluded that these developments warrant a reexamination of the continued reporting exemptions for 403(b) plans. Therefore, under the proposal, 403(b) plans that are subject to Title I of ERISA would be subject to the same annual reporting rules that apply to other ERISA-covered retirement plans, such as 401(k) plans, including eligibility for the proposed Short Form 5500. In particular, the DOL notes that, because 403(b) plans are generally required to be invested exclusively in annuity contracts or mutual funds, they generally would be eligible to file the proposed Short Form 5500.
The following are among the other proposed changes to the Form 5500 and its accompanying schedules:
a new checkbox would be added on Schedule A to permit plans to identify situations in which an insurance company or other organization that provides some or all of the benefits under a plan has failed to provide Schedule A information along with space for the administrator to indicate the type of information that was not provided;
new questions would be added to Schedule B that are designed to obtain a "look through" allocation of plan investments in certain pooled investment funds for defined benefit plans with 1,000 or more participants;
new questions on Schedules H and I regarding whether the plan has had a blackout period during the year and, if so, whether it has provided any required notices;
a new question on Schedules H and I as to whether the plan has failed to pay any benefits when due during the plan year;
new information on Schedule R relating to multiemployer plans where a particular employer's contributions constitute at least five percent of the total contributions for the plan year; and
a new question on Form 5500 seeking the total number of contributing employers to multiemployer plans.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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