Transcript OACUBO Professional Development Conference

April 26, 2010
David O. Reyes CPA - Benefits Tax Compliance
Pam Lebold CPA - Risk Management
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Greater Transparency
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More Disclosure
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Accountability
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Form 5500 Overview
◦ What plans must file
◦ 5500 and required Schedules
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Changes affecting the 2009 Form 5500
◦ Changes to the 2009 Forms
◦ 403(b) Plan expanded reporting requirements
◦ New Electronic Filing Requirements
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457/Deferred Compensation Plan Compliance
Excess Benefit Transactions
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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)
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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.
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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
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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
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Form 5500 and Schedules open to public
inspection
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Significant penalties may be assessed for late
filings
◦ DOL $1,100/day
◦ IRS $25/day capped at $15,000 per year
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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
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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
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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
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Form 5500
◦ New pension plan characteristics codes
◦ Question on number of contributing employers
◦ Optional line for principal preparer has been deleted
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Schedule A
◦ Identify insurers that fail to supply information
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Schedule H
◦ Large plan failures to pay benefits due
◦ Schedule of delinquent participant contributions – Questions
on blackout compliance
◦ Reporting of mutual fund dividends
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Schedule I
◦ Small plan failures to pay benefits due
◦ Questions on blackout compliance
◦ Separate disclosure of fees paid to administrative service
providers
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Schedule SSA
◦ No longer required beginning with 2009 filing
◦ Replaced with IRS Form 8955-SSA
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Attachments Under EFAST 2
◦ Accountants opinions/financial statements
◦ Actuary attachments to Schedule SB
◦ Attached to the 5500 in pdf or plain text files (ASCII)
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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.
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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
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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
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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
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Software: Three options
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Registration with EFAST2
◦ A private, Web-based system
◦ A third-party software application
◦ DOL’s Web-based system (IFILE)
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
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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
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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
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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
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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
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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
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IRC Section 4958
Penalty on the individual for non-fair market
value transactions
Most common: unreasonable compensation
Individuals are “disqualified persons” or
insiders
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1st tier penalty: 25% of the excess benefit
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2nd tier penalty: 200% if correction not made
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Penalty cannot be paid by organization
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How to correct excess benefit
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College President’s comp & benefits =
$400,000
Assertion that reasonable compensation =
$300,000
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Excess benefit = $100,000
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1st tier penalty = $25,000
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Correction = pay $100,000 back to College
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Shifts burden of proof to IRS
3 requirements:
1. Persons making decision are independent
2. Comparability data
3. Contemporaneous documentation
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990 questions