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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.
IRS Employee Plans (EP) is facing a stiff challenge to improve its processing of employee stock ownership plans (ESOPs), in particular the issuance of determination letters, an IRS official indicated on October 28, 2011. As of early 2010, EP had a 1,500-case backlog from two submission cycles, Donald Kieffer, IRS area manager, Employee Plans Determinations, said during an IRS phone forum on the ESOP determination letter program.
Processing obstacles
According to Kieffer, ESOP processing has faced a number of obstacles over the years. Initially, work on ESOPs was considered "nonspecialized" and was assigned as general process work. In 2001, two developments triggered the need to develop a cadre of ESOP specialists: the detection of widespread abuses involving ESOPs, and the enactment of new requirements in Code Sec. 409(p). Since then, the IRS has aimed to increase the consistency and quality of ESOP reviews, he noted.
Other processing obstacles include the loss of one full cycle because of the number of late submissions, and the need to develop specialized guidance to address ESOPs, Kieffer said. Work was suspended on a substantial number of submissions for over a year, while EP developed the necessary guidance. More recently, EP has implemented an expedited review process, posted a streamlined ESOP checklist on the IRS website and added people to the ESOP cadre. However, Kieffer indicated that it will take some time to see results.
Form 5300 and 5310 submissions
Currently, the IRS is reviewing Cycle C Form 5300 submissions up to September 2008 and is reviewing Form 5310 (termination) submissions up to October 2010, Kieffer said. He added that plans can now check the status of their determination letter applications on the IRS website.
Michele Owen, a member of the EP Determinations ESOP Cadre, discussed some new processing procedures. EP has assigned two employees to do accelerated processing of all incoming submissions, according to Owen. Contact will only be made with the taxpayer on cases that can be resolved in a single contact. Otherwise, applications will be reassigned to the rest of the ESOP cadre.
Owen noted that EP is currently reviewing Cycle C Form 5300 applications. If a taxpayer has applications outstanding from Cycles A or B, and no contact has been made, the taxpayer should fax plan information to EP and the IRS will investigate the status of the application.
In addition, Owen described some recurring issues in ESOP determination letter submissions. Plans are not submitting all amendments required for Cycle C applications, such as Economic Growth and Tax Relief Reconciliation Act (P.L. 107-16) good-faith amendments, amendments to comply with Code Sec. 401(a)(9) and automatic rollover amendments under Code Sec. 401(a)(31)(B). Other relevant amendments include provisions for Code Sec. 409(p), if the employer is an S corporation, for Code Sec. 415 final regulations, and for KSOPs (combined ESOP and 401(k) plans).
Other problems involve plan documents, according to Owen. Plan documents, amendments and/or trust documents are submitted either without a date or a signature, she indicated. Additional problems involve Code Sec. 409(l), participation waivers, debt forgiveness language, classification of stock sale proceeds, segregation language and exempt loan language.
Employment-based plan participation remained steady in 2010: EBRI report
Despite continuing weakness in the economy, the portion of full-time, full-year workers age 21-64 who participated in an employment-based retirement plan remained stable at 54.5% in 2010, showing no appreciable drop from 2009, according to a new report by the Employee Benefit Research Institute (EBRI). This makes 2010 only the second year in the last six years without a decrease.
The report found that, in general, workers in Midwestern, Mid-Atlantic, and Northeastern states had the highest levels of participation in employment-based retirement plans, while those in Southern and Western states had the lowest levels. In addition, public sector employees were far more likely than those in the private sector to be covered by a retirement plan.
"Retirement plan participation by workers is strongly tied to macroeconomic factors such as stock market returns and the labor market," said Craig Copeland of the EBRI, author of the report. "Better conditions of the late 1990s resulted in higher levels of participation, while worse conditions of the 2000s led to lower levels of participation."
"The economic crisis of 2008 and 2009 clearly had an impact on the most recent participation data," Copeland added.
Age
The report found that the percentage of wage and salary workers ages 21-64 participating in a retirement plan in 2010 increased with age. For those ages 21-24, 17.2% participated in a plan, compared with 53.5% of those ages 55-64. Among wage and salary workers ages 21-64, the plan sponsorship rate increased to 61.6% and the portion participating increased to 54.5% in 2010. Among all Americans who worked in 2010 (including part-time employees), 49.2% worked for an employer or union who sponsored a retirement plan and 39.8% participated in the plan.
Race
The report found that Hispanic wage and salary workers were significantly less likely than both white and black workers to participate in a retirement plan. The gap between the percentages of black and white plan participants narrows when compared across earnings levels, with blacks surpassing whites at incomes of $75,000 or more. In contrast, the gap between Hispanics and whites persisted across all earnings groups, although it showed some narrowing in the higher earnings groups.
Education
Among workers without a high school diploma, 17% participated in a retirement plan, the report found, compared with 65.8% for those with a graduate or professional degree.
Geography
The EBRI report found that states where workers had the lowest levels of participation --Florida, Nevada, Louisiana, Mississippi, South Carolina and Georgia --were in the South and West. States where employees had the highest participation were in the Mid-Atlantic and upper Midwest --West Virginia and North Dakota.
Source: EBRI press release PR #941, October 11, 2011.
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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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