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Form 5500 Update

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  1. Form 5500 Update ABC of Detroit March 22, 2007

  2. 2006 Form 5500 Janice M. Wegesin

  3. What We’ll Talk About Today • Things to know about the 2006 form and schedules • Common questions/issues that arise • Changes for 2007 plan years • Form 5500-EZ threshold increased • “Small Plan” requirements • Mandatory E-Filing for 2008 ABC of Detroit

  4. Form 5500

  5. 2006 Form 5500 Update • No booklets being mailed to plan sponsors • Call for forms at 800/829-3676 • Be specific about every schedule you need • Approved software vendors • Approval for machine print versions • Required to certify for electronic filing of 2006 forms ABC of Detroit

  6. Preparing Form 5500 • Consider “entity control” items • Used by agencies to relate one filing to another • Plan sponsor name • Plan name • EIN / PN • Use line 4 wisely! ABC of Detroit

  7. Who Must Sign? • Person authorized by Plan Sponsor • Person authorized by Plan Administrator • May be the same individual • Not required to be owner/officer of plan sponsor but often is • For current e-filing, these are the only persons who need signer IDs and PINs ABC of Detroit

  8. Line 4 • Most common error – inconsistent EIN / PN from prior filing • Relates only to prior year’s filing, so amending current year’s filing doesn’t solve problems • 2004 filing shows PN 001 • 2005 filing shows PN 002 but line 4 not completed • How to fix? ABC of Detroit

  9. Edit Checks • EFAST has system checks • Multiple levels that are randomly applied • Relate filing to prior year • Check internal accuracy (math) and consistency • Are typically the starting point for deficiency letters • Your software may provide some level of edit checks to minimize errors ABC of Detroit

  10. Lines 6 and 7 • Line 6 is count on first day of plan year • Often, this is not the same count as shown at line 7f on prior year filing • Is threshold for establishing small vs. large plan • 80 / 120 Rule • May continue to file as small plan until count goes over 120 on line 6 • Not a one-time exception! ABC of Detroit

  11. Lines 6 and 7 • Counts at line 6 and 7a-f include all eligible employees, not just those with account balances • Line 7i ties to Schedule SSA • Rules for reporting on Schedule SSA will be discussed later ABC of Detroit

  12. Lines 8, 9, and 10 • Edit checks reference these lines for consistency and attachments • Box (1) at Line 9a checked means Schedule A should be attached and that box (3) should be checked on line 10b • Lots of “indirect” links ABC of Detroit

  13. Schedules

  14. No Changes for 2006 • Schedules A, B, C, D, E, G, H, I, R and SSA • Format is identical • Instructions are same or have only minor changes ABC of Detroit

  15. Schedule P is Gone!

  16. Schedule A – Insurance Information • Types of contracts • Allocated (less common in retirement plans) • Unallocated (GICs, group annuity contracts, etc.) • Pooled separate accounts reported at line 4 means Schedule D also required • Life insurance in retirement plans is welfare benefit reported in Part III ABC of Detroit

  17. Schedule D – Direct Filing Entities • Part I is completed by plan that invests in DFE; Part II is left blank • Values should tie to Schedule H • If PSA held, should also tie to value reported at line 4 of Schedule A ABC of Detroit

  18. Schedules H / I • Tricky line 4a • Reporting late deposits of payroll deduction 401(k) withholdings and/or loan repayments • Complete line 4d for other than line 4a events • When is “late?” • How many years do you have to report it? ABC of Detroit

  19. FAQs May Be Helpful • EBSA has posted a number of FAQs on its website to explain rules • Small Plan Audit Waiver • Delinquent Filer Voluntary Compliance • Late deposit of 401(k) withholding • ABC of Detroit

  20. Schedule SSA • Cannot use attachments for 2006 filings • Check with software vendor for data import capabilities • Must report – • Deferred vested • Changes • Deletes ABC of Detroit

  21. Schedule R • Don’t file Schedule R just to complete line 9 • Only one Schedule R per filing, even if for multiple employer plan • Remember: it’s coverage under Section 410(b) that is being reported and not satisfaction with Section 401(a)(4) rules ABC of Detroit

  22. Odds and Ends Form 5500-EZ Form 5558

  23. 2006 Form 5500-EZ • Not required to attach Schedule B for defined benefit plan, but funding standard account must be maintained. • Must maintain signed copy of Schedules B. • New Line 10i asks about actuary’s certification and whether there is any funding deficiency ABC of Detroit

  24. Form 5558 • New form issued in January 2007 that officially eliminates signature requirement unless filing to extend due date of Form 5330 • Who can sign? • Attorney, CPA, Enrolled Actuary, Enrolled Agent ABC of Detroit

  25. Changes for 2007

  26. Form 5500-EZ • The threshold for reporting on Form 5500-EZ is raised to $250,000 for plan years beginning in 2007 • How will IRS transition from the $100,000 threshold currently in place? • No relief in sight for late filers of Form 5500-EZ ABC of Detroit

  27. “Small Plan” Relief • PPA requires DOL to create a simplified reporting scheme for small plans • Small plans are defined as having 25 or fewer participants • Rule applies beginning in 2007 • DOL anticipated this for the 2008 year with the new Form 5500-SF ABC of Detroit

  28. Other Issues Apply to 2008 plan years • PPA extends multiemployer Annual Funding Notice to all defined benefit plans instead of SAR • Requirement to post Form 5500 on any intranet website maintained by plan sponsor ABC of Detroit

  29. MANDATORY Electronic Filing of Form 5500

  30. Mandatory Electronic Filing • What do we know so far? • How will this change your business? • Getting ready ABC of Detroit

  31. Status of E-filing • Proposed to apply to plan years beginning after 2008 • PPA legislated e-filing • Eliminates paper option • Improves time of public disclosure • Continue to use vendor software • Internet-based filing process ABC of Detroit

  32. Practitioner Concerns • Registration process for e-signatures • Allow for third-party filing system • Experience with 1999 transition • Rejection of filings during initial year • No separate filings with IRS • Adapt system for late, amended, and disaster relief filings ABC of Detroit

  33. Practical Considerations • Computer “dummies” • Plan sponsors without computers • Security and attachments • Automatic edit tests • Rejection and resubmission • What constitutes “timely” filing? ABC of Detroit

  34. Outreach • Educate practitioners • Create e-public disclosure room ABC of Detroit

  35. Transitions • No learning curve • Adapting your office procedures • Preparing clients for e-filing ABC of Detroit

  36. Other Issues • Alternatives for Form (Schedule) SSA submission • Form 5500-SF • Used by “small” plans • Electronic option for one-participant plans (instead of Form 5500-EZ ABC of Detroit

  37. Late Filing Penalties and Options for Abatement

  38. Late Filer Penalties • Assessed under IRC 6652(e). • $25/day, up to $15,000. • Can waive or abate penalties if reasonable cause is established. ABC of Detroit

  39. Failure to File Penalties • Up to $1,100 per day for failure or refusal to file a complete report. • Other penalties can be imposed for failure to provide report of independent accountant, Schedule SSA, etc. ABC of Detroit

  40. Late Filing Solutions • DOL has updated its Delinquent Filer Voluntary Compliance (DFVC) Program • IRS has agreed to waive penalties on plans filing under DFVC • See IRS Notice 2002-23 • PBGC also on board • Reasonable cause is still available ABC of Detroit

  41. How Far Back Do You Fix? • All the way back, but…. • The appropriate Form 5500 filing must be prepared for every open year. • It’s critical that the filings for the last three years be perfect. These three filings will be subjected to full edit testing and review at EFAST. ABC of Detroit

  42. What About Audit Reports • DOL requires at least past three years be complete • Digress for a moment – • Never ignore a letter from DOL about missing audit reports • 10 day letter; followed by 45 day letter ABC of Detroit

  43. Reasonable Cause • Agencies must continue to consider reasonable cause for late filing • Each agency can assess penalties independent of each other • Not clear if IRS is reviewing reasonable cause letters sent to EFAST with original filing ABC of Detroit

  44. Reasons for Late Filing • Based on events or parties involved. • Did taxpayer exercise ordinary business care and prudence? • A first time delinquency does not by itself establish reasonable cause. ABC of Detroit

  45. Facts and Circumstances • Length of time between event cited as reason filing is late and the actual filing date. • Could taxpayer have anticipated the event? • Were circumstances beyond taxpayer’s control? ABC of Detroit

  46. Common Reasons Cited • Death, illness, or absence of taxpayer or immediate family member having sole authority to execute return. • Destruction of records. • Unable to obtain necessary records. • Ignorance of the law. ABC of Detroit

  47. Contents of Letter Dear EBSA: We are filing with this letter the Form 5500 for the above-named Plan for its calendar plan years ending in 2002 through 2005. These filings are late; however, we believe we have circumstances that qualify as “reasonable cause” and, therefore, request that both the EBSA and the IRS grant a waiver or abatement of any late filing penalties that may be assessed due to these late filings. ABC of Detroit

  48. Tell the Truth • “My dog ate it” is ok, if that’s the truth • No “right” or “wrong” excuses • Confusion among professionals or bad/no advice are very common excuses • Consult honestly – some facts just don’t warrant reasonable cause! ABC of Detroit

  49. Beg for Mercy Our firm has every intention of complying with ERISA’s reporting and disclosure rules. We believe the late filing of prior year reports for this Plan is the result of reasonable cause, not willful neglect. Accordingly, we request relief from any and all late filing penalties which the agencies may assess. ABC of Detroit

  50. Closing Paragraph Under penalties of perjury, ABC Company presents this information and declares that these statements are, to the best of our knowledge, true, correct, and complete. Please contact the undersigned if you have any questions in connection with this request. ABC of Detroit