Pw c web june 2019
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The document provides an overview and update on the 2018 Form 5500 filing requirements. Some key changes include updates to certain business activity codes, clarifications for counting welfare plan participants, and updates to Schedule MB related to critical status determinations and mortality tables. The document reviews the main Form 5500 requirements including plan characteristic codes, funding and benefit information, required schedules, and details on attachments. It emphasizes ensuring prior year information matches unless there has been a formal change.
Pw c web june 2019
- 1. 2018 Form 5500 Update June 2019
- 2. PwC Agenda • Introduction • Form 5500 Overview • Changes to 2018 Form 5500 • Form 5500 (Main Form) • Schedules –Schedules H, D, A, C, R, G, I, MB/SB • Emerging Issues • DOL Enforcement • Form 8955-SSA June 20192018 Form 5500 Update 2
- 3. PwC What is the Form 5500? • Annual Report of employee benefit plans • Primary source of information about employee benefit plans • Used by DOL, IRS & PBGC • Used for enforcement, research and disclosure to participants and beneficiaries • Publicly available • Forms, Schedules & Instructions discussed and reproduce herein, can be found at https://www.efast.dol.gov June 20192018 Form 5500 Update 3
- 4. PwC Who files the Form 5500? Pension Plans • Defined benefit • Defined contribution (profit-sharing, 401(k), 403(b), money purchase, ESOPs) Welfare Plans • Medical, dental, vision, life, disability • Medical flexible spending accounts Direct Filing Entities (DFEs) • Common Collective Trusts (CCTs) • Master Trust Investment Accounts (MTIAs) • 103-12 Investment Entities (103-12IEs) • Pooled Separate Accounts (PSAs) • Group Insurance Arrangements (GIAs) June 20192018 Form 5500 Update 4
- 5. PwC When is the Form 5500 filing due? Plans and GIAs – Last day of the 7th month after year end – May be extended to 9 ½ months after year end DFEs other than GIAs – 9 ½ months after the DFE year end – No extensions June 20192018 Form 5500 Update 5
- 6. PwC Extensions – Form 5558 • File Form 5558 with IRS – Automatic 2 ½ months extension for plans – Signature not required • Sponsor receives automatic extension to extended tax return deadline if plan year and plan sponsor’s tax year are the same (usually only 1 ½ months extra) • Extension requests are no longer required to be attached to Form 5500 • Used to extend Form 5500 Series & Form 8955-SSA • Must use the most current version (September 2018) • Signature no longer required when used to extend Form 8955-SSA • Must file separate Form 5558 for each plan – May use a single Form 5558 to extend the Form 5500 and Form 8955-SSA for the same plan – Lists attached to the form will no longer be processed • Note checkbox added for recently adopted plans that are requesting an extension for a plan that will be filing a Form 5500 Series for the first time June 20192018 Form 5500 Update 6
- 7. PwC Extensions – Form 5558 (continued) • Must file Form 5558 with the IRS in Ogden, Utah • Disaster relief extensions • Do not file with EFAST2 • Copies of extension request when used for Form 5500 Series or Form 8955-SSA will not be returned to filers – Keep a copy of extension request for your records June 20192018 Form 5500 Update 7
- 8. PwC Which form should be used? • Form 5500 – Used by large plans and DFEs • Form 5500-SF – Form 5500-EZ filer option – May be used if plan has under 100 participants • DOL reviews Form 5500-SF that show 0 (zero) participants at BOY – How does the 80-120 rule work for small plans June 20192018 Form 5500 Update 8
- 9. PwC Form 5500-EZ • Form 5500-EZ (not electronically filed) – Used by one-participant plans with $250,000 or more in assets as of end of plan year (unless 2018 is final year) – Includes partners and spouses – No employees covered – Available for certain business types only – Mandatory Form 5500-SF electronic filing instead of paper Form 5500-EZ filers effective for plans years that began on or after 01/01/2015 with filing deadlines after 12/31/2015 • If file at least 250 information returns with IRS • Economic hardship waivers available June 20192018 Form 5500 Update 9
- 10. PwC Form 5500-EZ continued • Must be filed by foreign plans that cover US citizens and residents • Form 5500-EZ is filed on paper with IRS (see exceptions) • If plan administrator wants to file electronically, may file condensed version of Form 5500-SF • Form 5500-SF filings with ‘One-Participant Plan’ box checked are blocked from public access June 20192018 Form 5500 Update 10
- 11. PwC Form 5500-SF • Two-page form • Includes basic identifying information and financial information similar to Schedule I June 20192018 Form 5500 Update 11
- 12. PwC Who may file Form 5500-SF? • Pension and welfare plans with < 100 participants (80 to 120 rule applies) • Plan must be eligible for small plan audit waiver (not with enhanced bonding) • No employer securities • All assets must have readily determinable FMV • Not available for multiemployer plans • Not required to file Form M-1 June 20192018 Form 5500 Update 12
- 13. PwC Amended Forms 5500 • All amended returns must be filed electronically through EFAST2 – even if originally filed on paper • For defined benefit plans, must use the Schedule B, Schedule SB or Schedule MB required for the plan year being filed • Must use correct year Schedules E, P, R and T, if required for that year • May use the Schedule C for the plan year being filed rather than the current year form (years prior to 2009) • Amending a Form 5500 return or filing an extension does not itself trigger DOL audits June 20192018 Form 5500 Update 13
- 14. PwC Amending Form 5500 • Cannot amend a Form 5500 with a Form 5500-SF • If amending a 2012 – 2017 filing, use the correct year form. Otherwise, use the 2018 year form • If the Prior Year Schedule is not listed on line 10, then there is nothing to check on that line • FAQ 4 can help guide you • Check out the online Form Selection tool at: http://askebsa.dol.gov/FormSelector/ June 20192018 Form 5500 Update 14
- 15. PwC 2018 Changes • Changes to certain business codes • Clarifications for welfare plan participant counts • Update to characteristic code 3D • Schedule MB – contributions, critical/critical and declining status, instructions updated for mortality codes, Revenue Procedure 2017-56 • Clarifications for who must file Schedule R June 20192018 Form 5500 Update 15
- 16. PwC Updates to Business Activity Codes Name Original Code Updated Name/Code Household Appliance Mfg 335200 Major Household Appliance Mfg Oil & Gas Crude Petroleum 211121 Crude Petroleum/211120 Natural Gas Extraction N/A 211130 (new code) Department Stores 452110 452200 Other General Merchandise Stores, Incl. Warehouse Clubs & Supercenters 4529004 General Merchandise Stores, incl. Warehouse Clubs & Supercenters/ 452300 Formal Wear & Costume Rental 532220 532281 Video Tape & Disc Rental 532230 532282 Other Consumer Goods 532290 Home Health Equipment/532283 General Rental Centers 532310 Recreational Goods Rental/532284 Commercial & Industrial 532400 All Other Consumer Goods Rental/532289 Rooming Boarding Houses 721310 Rooming and Boarding Houses, Dormitories, and Workers’ Camps June 20192018 Form 5500 Update 16
- 17. PwC 2018 Changes Schedule MB • Instructions for Line 3 modified to require an attachment if/when reported contributions include a withdrawal liability payment • Instructions for Line 4f modified to require an attachment detailing how the year of critical status or critical and declining status was determined • Various lines have been updated to comply with the issuance of Revenue Procedure 2017-56: – Line 23 updated for final regulations prescribing mortality tables – Line 27 codes 5 and 8 no longer valid – Lines 42 and 43 have been removed since no longer valid June 20192018 Form 5500 Update 17
- 18. PwC Form 5500 • Item A – Type of plan or DFE – Multiple-employer plans have to attach a list of participating employer information • Item B – Type of report • Item C – Checked if plan is collectively bargained • Item D – Checked if plan is filing under extension of time using Form 5558, automatic extension, DFVC Program or special extension – If using a special extension, enter a description in space provided – Do not attach Form 5558 or other extension request Reminder: Include the participating employer information attachment June 20192018 Form 5500 Update 18
- 19. PwC Basic Plan Info • Item 1a – Name of plan or DFE • Item 1b – Plan or Entity Number – Pension plans and DFEs (except GIAs): Start at 001 – Welfare plans and GIAs: Start at 501 – Plan number 333 allowed if box 8a is checked and used in previous years • Item 3a – to indicate whether Plan Administrator’s name and address is the same as Plan Sponsor’s name and address Consideration: Name of Plan/DFE, Sponsor Name, Plan/Entity Number Entity should match the prior year filing unless a formal change June 20192018 Form 5500 Update 19
- 20. PwC Items 4 - 7 • Item 4 – Change in sponsor name, plan name or EIN – Enter the sponsor name, plan name, EIN and PN from last filing – Be sure to update if mergers, acquisitions have occurred • Items 5 & 6 – Participant count – 401(k) plans – based on eligibility – Welfare plans – based on participation – Lines 6(a)(1) and 6(a)(2) – active employees at beginning and end of year • Note a large number of terminated vested participants will trigger IRS/DOL interest • Item 7 – Total number of contributing employers – Completed by multiemployer plans only Remember to enter all items for the prior year information even if only one element changed Also - Line 6g (number of account balances) should not be greater than Line 6f (total participants) June 20192018 Form 5500 Update 20
- 21. PwC Items 8 - 11 • Item 8 – Plan characteristic codes – Plans may have both pension & welfare codes – Use all applicable codes • Item 9 – Funding & Benefits – Must check at least one box on both 9a & 9b – Follow instructions to determine which applies • Item 10 – Pension and General Schedules – Check box for each schedule attached – Enter number of schedules, if required • Line 11 – Form M-1 Compliance Information – All plans providing welfare benefits must complete – For MEWAs and ECEs June 20192018 Form 5500 Update 21
- 22. PwC Schedules and Attachments • Item A – Plan or DFE name may be abbreviated • Items B, C, and D – Info must match info on Form 5500 • Attachments must be properly identified and include plan name, sponsor’s EIN, and PN and should indicate the schedule & line to which the attachment relates • Attachments may be in PDF or ASCII Text format Key Consideration– Do NOT submit files with password protection. It will generate a 'unprocessable error' stating the filing you were attempting to submit was not accepted by the Government and one or more attachments are invalid because they are in an improper file format. June 20192018 Form 5500 Update 22
- 23. PwC Who Must File Schedule H? • Large pension and welfare plans and • All Direct Filing Entities • Exceptions: – Insured, unfunded or combination of insured/unfunded welfare plans (29 CFR 2520.104-44) – Fully insured plans (29 CFR 2520.104-44) – Plans utilizing the '80-120 Rule' June 20192018 Form 5500 Update 23
- 24. PwC Determining Large Plan Status • Defining Participant – Welfare Plans – “Covered individual” – Qualified Plans – • Active participants • Retired or separated participants receiving benefits • Other retired or separated entitled to future benefits • Deceased individuals June 20192018 Form 5500 Update 24
- 25. PwC Determining Large Plan Status • Line 5 – Total Participants at the beginning of the plan year – Audit Count determination: Is it 100, 120 or 121 at the beginning of the year? • Line 6 – Number of Participants at the end of the plan year – a(1) Active participants at the beginning of the plan year – a(2) Total number of active participants at the end of the plan year June 20192018 Form 5500 Update 25
- 26. PwC Participant Counts: 80-120 Participant Rule • If the number of participants reported on line 5 is between 80 and 120, and a Form 5500 annual return/report was filed for the prior plan year, you may elect to complete the return/report in the same category (“large plan” or “small plan”) as was filed for the prior return/report. • Thus, if a Form 5500-SF or a Form 5500 annual return/report was filed for the 2017 plan year as a small plan, including Schedule I if applicable, and the number entered on line of the 2018 form 5500 is 120 or less, you may elect to complete the 2018 Form 5500 and schedules in accordance with the instructions for a small plan, including for eligible filers, filing the Form 5500-SF instead of Form 5500. – 2018 Form 5500 instructions. • Short Plan Year Rule: – Note the audit delay is a deferral and not an exemption. June 20192018 Form 5500 Update 26
- 27. PwC Small Plan Form 5500 Requiring an Audit • 95% of the assets maintained in the plan (as of the last day of the preceding plan year) must be “qualifying plan assets” under the requirements of the Department of Labor in order to eliminate the need for a small plan audit (less than 120 participants in the plan). • Qualifying assets include: participant loans, qualifying employer securities, assets held by a bank, insurance company, broker-dealer, mutual fund or related entity. Non- qualifying assets include limited partnership interests and real estate interests as examples. June 20192018 Form 5500 Update 27
- 28. PwC Who files Schedule I? Small pension & welfare plans that are not eligible to file Form 5500-SF Exceptions: Fully insured, unfunded or combination welfare plans Certain fully insured pension plans (see page 8 of instructions) '80-120 Rule' Plans that filed as a small plan in 2017 may continue to file as a small plan if the plan covered no more than 120 participants at the beginning of the 2018 plan year. June 20192018 Form 5500 Update 28
- 29. PwC Schedule I Part 1: Lines 1 & 2 • Certain deemed & corrective distributions reported as on Schedule H • Current value reporting required similar to that on Schedule H • Plans must separately report expenses for administrative service providers and other expenses Part I: Line 3 • Check if plan held assets at any time during the plan year in any of the specified categories • Check 'Yes' on line 3 and enter the current value of any assets remaining in the plan as of the end of the plan year June 20192018 Form 5500 Update 29
- 30. PwC Schedule I – Part II - Compliance Questions • Similar to Part IV of Schedule H • Report delinquent participant contributions/loan repayments on Line 4a (do not report on Line 4d) - For small plans that require audited financial statements, attach a schedule of delinquent contributions/loan repayments - See instructions for required format • Question 4i – excludes US Government/agency securities, securities held from participant-directed transactions • Line 4k – audit waiver June 20192018 Form 5500 Update 30
- 31. PwC Small pension plan audit waiver summary June 20192018 Form 5500 Update 31 Is the plan a pension plan? Is the Schedule I required as part of the plan’s annual report? Do at least 95% of the assets of the plan constitute 'qualifying plan assets'? Small pension plan audit waiver conditions do not apply. The conditions for the waiver have not been satisfied. Is each person who handles non-qualifying plan assets properly bonded in an amount that is at least equal to the value of the non-qualifying plan assets? The conditions for the waiver of IQPA audit and report have been satisfied. No Does the administrator disclose the required information in the SAR and on request? Yes No No No No Yes Yes Yes Yes
- 32. PwC Notes on Small Plan audit waiver • Schedule I, Part II, Line 4k - Check 'Yes' if claiming waiver of the audit requirement Plans eligible: • Welfare plans • Small pension plans that satisfy the conditions of the Small Pension Plan Security Regulation If the plan is required to be audited: • Check 'No' and attach audit report and financial statements • Schedule I filers are not required to attach supplemental schedules June 20192018 Form 5500 Update 32
- 33. PwC When are audited financial statements required? • Large pension plans (100 or more participants) • 80-to-120 rule • Small pension plans that do not meet the conditions for the audit waiver • Large funded welfare plans (100 or more participants) - VEBAs or taxable trusts • 80-to-120 rule different for welfare plans because small fully insured or unfunded welfare plans are not required to file - Only small funded welfare plans required to file may take advantage of this rule June 20192018 Form 5500 Update 33
- 34. PwC File with or without an audit report attached? A frequently asked question is whether Form 5500 should be filed by the due date if the audit report is not yet completed or should the Form 5500 be filed late through the Delinquent Filer Voluntary Compliance Program (DFVCP). June 20192018 Form 5500 Update 34 http://www.dol.go v/ebsa/enforceme nt/OCAManual/ch a8.html
- 35. PwC File with or without an audit report attached? (continued) Q25: Will the EFAST2 system still receive my filing if I do not attach the IQPA report with my Form 5500 annual return/report when it is required? • EFAST2 will receive the filing which may be subject to further review, rejection and civil penalties • Schedule H, Line 3 must be correctly answered • Still complete line 3c if the IQPA for the plan can be identified? • Correct the error as soon as possible June 20192018 Form 5500 Update 35
- 36. PwC Schedule H – Things to Consider Schedule H Part I Beginning of the year values match the prior year values by asset/liability classification • IRS EPCU project – End of Year/Beginning of Year Assets Mismatch Line 1c(8) Participant Loans do not report for master trusts. Line 1c(9) common/collective trusts if beginning or ending balance do you have a Schedule D? • Do you have corresponding income or loss? June 20192018 Form 5500 Update 36
- 37. PwC More Schedule H – Things to Consider Part I Line 1c(10) pooled separate accounts if beginning or ending balance do you have a schedule A and Schedule D? • Do you have corresponding income or loss? 1c(14) insurance company general account – if beginning or ending balance do you have a Schedule A? Is there a reconciling footnote needed in the financials, if so, does it agree with the Schedule H balance? Compare assets by type in Part I have corresponding income in Part II. If transfers are reported from the plan has line 5b been completed? June 20192018 Form 5500 Update 37
- 38. PwC More Schedule H Things to Consider Part III Accountants opinion • If line 3b is checked limited scope is disclaimer check on line 3a? • Should not have unqualified, qualified, adverse -checked with limited scope audit Part IV Lines 4a – 4d - is there a supplemental schedule that needs to be attached? Line 4e – enough covered under the fidelity bond? Line 4i Schedule of assets held at end of year – is schedule attached? 4k vs 5a – plan merger verses plan termination, are these lines answered correctly? June 20192018 Form 5500 Update 38
- 39. PwC Compliance Questions • Late 401(k) and loan transmittals are a DOL target • Be sure to check the prior year’s financial statement for late transmittals and ask confirm they have been corrected and Form 5330 excise tax returns have been filed with IRS • IRS position is that there is no de minimis threshold for Form 5330 • Filing under the DOL VFCP program is also advisable but not required • DOL has sent out letters when it notices that a VFCP filing has not been made • Form 5500 instructions are not clear but once the prohibited transaction has been corrected, it need not be reported in the subsequent year June 20192018 Form 5500 Update 39
- 40. PwC Compliance Questions continued Line 4 l, “Has the plan failed to provide any benefit when due under the plan?” • The instructions make it clear that a plan failure to pay minimum distributions at age 70-1/2 must be reported – Reporting is not required if such participants cannot be located after a reasonable efforts have been made to locate them or the plan is in the process of searching for them at the end of the plan year reporting period – Given the DOL’s interest in missing participants, you should confirm with your client that they have made reasonable efforts to locate missing participants – The Instructions suggest using the search methods cited in DOL Field Assistance Bulletin 2014-01 – Some practitioners have taken the view that retaining uncashed checks for an extended period might be a prohibited transaction June 20192018 Form 5500 Update 40
- 41. PwC Who must file Schedule D? • Plans that held investments in a DFE at any time during the plan year; and • Trusts, accounts, and other investment arrangements that file the Form 5500 as a 'Direct Filing Entity' June 20192018 Form 5500 Update 41
- 42. PwC Schedule D • Part I - Completed by: – All plans that participate in CCTs, PSAs, MTIAs or 103-12 IEs – All DFEs that participate in CCTs, PSAs or 103-12 IEs Part II - All DFEs must complete • Part II - All DFEs must complete – Name of each plan that participated in DFE during the year – Name of sponsor of each plan – EIN/PN of Plan June 20192018 Form 5500 Update 42
- 43. PwC What are DFEs? Direct Filing Entities’ include: – Master Trust Investment Accounts (Code M) – Pooled Separate Accounts (Code P) – Common/Collective Trusts (Code C) – 103-12 Investment Entities (Code E) – Group Insurance Arrangements (Code G) June 20192018 Form 5500 Update 43
- 44. PwC Master Trust • A trust for which a bank or trust co. serves as trustee/custodian • Trust holds assets of more than one plan sponsored by a single employer or by a group of employers under common control • Separate Form 5500 is required for each master trust investment account • Form 5500 is required to be filed June 20192018 Form 5500 Update 44
- 45. PwC Common/Collective Trust • A trust that is maintained by a bank or trust company that is: – Regulated/supervised/subject to periodic examination by Federal or state agencies; and – Used for collective investment/reinvestment of assets contributed from employee benefit plans maintained by more than one employer or controlled group of corporations (IRC §1563) • Form 5500 filing is optional June 20192018 Form 5500 Update 45
- 46. PwC 103-12 Investment Entity • An entity (other than an MTIA, CCT or PSA) whose underlying assets include 'plan assets' of two or more plans that are not members of a related group of employee benefit plans • Report only ERISA plan investors • Optional filing • If file, must file a Form 5500 as a large pension plan • If don’t file, investing plan must report its share of assets on its Form 5500 on the appropriate line (e.g., securities, bonds) • Must be audited – Where foreign fund, issue of IFRS vs GAAP reporting June 20192018 Form 5500 Update 46
- 47. PwC Group Insurance Arrangements • An arrangement that files a consolidated Form 5500 for all participating plans in accordance with 29 CFR 2520.104-43 • Provides fully insured welfare benefits to plans of unaffiliated employers • Trust/other entity holds insurance contracts • Trust must be a conduit for premiums • Must file a Form 5500 and be audited • MEWAs are Multiple Employer Welfare Arrangements June 20192018 Form 5500 Update 47
- 48. PwC DFE Recap June 20192018 Form 5500 Update 48 Entity 5500 filing required? Audit required? MTIA Yes No PSA No No CCT No No 103-12 IE Yes Yes GIA Yes Yes
- 49. PwC Schedule A • Required for retirement and welfare plans if funding and/or benefits under the plans are provided by an insurance company or similar organization. • The most common are life contracts including:412(i) contracts, deposit administration, guaranteed investment, immediate participation guarantee and variable annuity. • 401(k) plans generally have a group contract that offers fixed income or pooled separate accounts. • Reports commissions and fees paid from the plan – the IRS and DOL review this information carefully. • Pension Plans: Allocated vs. Unallocated contracts. • Welfare Plans: Reports health and welfare benefits maintained through various insurance contracts. ERISA Advisory Opinion 2005-02A is considered the authoritative guidance regarding reporting of payments by carriers. • Filing Information: – Report the policy year ending within the plan year. – Premiums reported should reconcile to Schedule H for policies that correspond with the plan year. June 20192018 Form 5500 Update 49
- 50. PwC Fully insured group health and similarly fully insured benefits If fees and expenses have been reported on Schedule A, they do not also have to be reported on Schedule C • Insurance investment contracts are not eligible for this exception Compensation paid by insurer from its general assets to affiliates or third parties to satisfy its contractual obligations to provide benefits is not required to be reported on Schedule C • Would not include compensation provided by insurer incidental to the sale or renewal of a policy June 20192018 Form 5500 Update 50
- 51. PwC Schedule C – Service provider information – The basics • There are payments made directly from the plan Direct Fees = Reportable • There are payments not made directly from the plan Indirect fees = Reportable Eligible indirect fees = Disclosable June 20192018 Form 5500 Update 51
- 52. PwC Schedule C – Part I, Line 1 – Persons receiving only eligible indirect compensation June 20192018 Form 5500 Update 52
- 53. PwC Required written disclosures • Existence of compensation • Who paid the compensation • Who received the compensation • Services provided or purpose for payment of the indirect compensation • Amount (or estimate) or description of a formula used to determine compensation June 20192018 Form 5500 Update 53
- 54. PwC Examples of eligible indirect compensation Generally, fees or expense reimbursements charged to investment fund and reflected in fund’s value or return on investment • Examples: – Fund management fees – 12b-1 fees – Finder’s fees – Brokerage commissions (not part of the operation of the fund) – Float Revenue June 20192018 Form 5500 Update 54
- 55. PwC Part 1, Line 1 – Alternative reporting option Eligible Indirect Compensation a.k.a. Alternative Reporting option • Disclosable - If meets certain conditions, then fees/codes are not required to be reported (only report who provided the disclosures) • Make sure plan sponsor/administrator received all required disclosures for 'eligible indirect compensation‘ • FAQ 31: Do the disclosures regarding “eligible indirect compensation” need to be provided at least annually….. - No specific requirement however the plan admin must review in preparation of the Form 5500 at least annually and confirm the information is still correct June 20192018 Form 5500 Update 55
- 56. PwC $5,000 reporting threshold • $5,000 threshold remains unchanged • Applies for total of direct and indirect compensation • If administrator is only provided a formula for Schedule C compensation reporting purposes, generally amount is presumed to meet the $5,000 threshold June 20192018 Form 5500 Update 56
- 57. PwC Eligible indirect compensation Q3: Can the alternative reporting option for “eligible indirect compensation” be used to report compensation paid or received in separately managed investment accounts of a single plan? Yes. The Schedule C instructions state that “eligible indirect compensation” includes fees or expense reimbursement payments charged to “investment funds” and reflected in the value of the plan’s investment or return on investment. The instructions do not further define the term “investment fund” for this purpose. Investment funds would include mutual funds, bank common and collective trusts, and insurance company pooled separate accounts. In the Department’s view, the term would also include separately managed investment accounts that contain assets of an individual plan. Thus, so long as the other conditions for eligible indirect compensation are met, the Schedule C alternative reporting option can be used for indirect compensation received in connection with separately managed investment accounts of employee benefit plans. June 20192018 Form 5500 Update 57
- 58. PwC Direct compensation • Payments made directly by the plan (or plan sponsor if reimbursed by the plan) for services rendered to a plan or because of a person’s position with a plan Exceptions • Plan employee compensation <$25,000 • Employees of sponsor or service provider as long as: - Sponsor/service provider is reported on Schedule C - No other compensation from plan is paid to employee • Person whose only compensation was reported on Schedule A • Sponsor who was not reimbursed by Plan for expenses June 20192018 Form 5500 Update 58
- 59. PwC Quick look at Part I, Line 2 – Reporting Direct Compensation June 20192018 Form 5500 Update 59
- 60. PwC Persons receiving direct compensation example Part I, Line 2(a) • Except for those persons and eligible indirect compensation for which you answered “Yes” to line 1, complete as many entries as needed to list each person receiving $5,000 or more in total direct and indirect (including EIC) compensation. Part I, Line 2(b) • Enter service code describing service provided Part 1, Line 2(c) • Enter relationship with Plan or Plan sponsor, if any Part 1, Line 2(d) • Enter amount of direct compensation paid by Plan June 20192018 Form 5500 Update 60
- 61. PwC Part I, Line 3 Additional reporting of indirect compensation for certain service providers For each person identified in Line 2 who is: Plan fiduciary, or Person who provides these services: – Contract administration – Consulting – Investment advisory (plan or participants) – Investment management – Securities brokerage – Recordkeeping June 20192018 Form 5500 Update 61 • Report each source from whom the person received indirect compensation: • $1,000 or more, or • The plan was given a formula or other description of how compensation is determined
- 62. PwC Reporting indirect compensation – Example (continued) Indirect compensation may be reported by providing an amount, estimated amount, or formula. If provided a formula: • Enter ‘0' in Element (g) • Check 'Yes' to Element (h) • Attach description of formula or other method • Amount or formula to calculate indirect compensation may be based on service provider’s fiscal year that ends within the Plan’s reporting year. Direct compensation should be based on Plan’s year. June 20192018 Form 5500 Update 62
- 63. PwC Reporting indirect compensation – Example Part 1, Line 2 1. Capital One charged the plan $141,000 for recordkeeping services in 2018. 2. Massachusetts Mutual pays Capital One 10 basis points for other administrative services. (These remained unchanged through the end of the year.) June 20192018 Form 5500 Update 63
- 64. PwC Reporting indirect compensation – Example (continued) Part 1, Line 3 June 20192018 Form 5500 Update 64
- 65. PwC Part II, service providers who fail or refuse to provide information Before reporting a service provider in Part II: • Contact the service provider to request necessary information • Warn them you will list them on Schedule C, Part II June 20192018 Form 5500 Update 65
- 66. PwC Schedule C – Things to Consider Part I • Line 1- If you have mutual funds, CCT’s, PSA’s did you receive the disclosures for eligible indirect compensation. - Did you report who provided the disclosures? (not who received the compensation) • Line 2 – If Yes for element (e) service provider receiving indirect comp is (f) thought (h) completed? • Line 2 – If an amount on line (g) or (h) is checked Yes, do you need an entry on line 3? Part III – did you change auditors? June 20192018 Form 5500 Update 66
- 67. PwC Schedule C - recap • For mutual fund investments or other investment funds with fees paid from fund, complete Schedule C, line 1 • For direct expenses paid from the plan’s trust, enter on line 2 • For indirect compensation paid to service providers, complete line 2 and 3. June 20192018 Form 5500 Update 67 Line 1 Line 2 Line 3 EIC Only Direct Only Indirect Direct and EIC Non-monetary Direct and Indirect Non-monetary
- 68. PwC Schedule R • Required for tax-qualified pension benefit plans • Plans subject to minimum funding under Code 412 or ERISA Section 302 must report specific funding information – applies to defined benefit and money purchase plans • Also reports distribution information, ESOP disclosures, employer information for multiemployer defined benefit pension plans June 20192018 Form 5500 Update 68
- 69. PwC Schedule G • Large plans if lines 4b, 4c, or 4d of the Schedule H are marked 'Yes'; • MTIA, 103-12 IEs and GIAs must complete if lines 4b, 4c or 4d of Schedule H are marked 'Yes'; and • Large welfare plans exempt from Schedule H must complete Part III to report nonexempt transactions • Types of Transactions Reported on Schedule G • Loans & fixed income obligations in default or classified as uncollectible • Leases in default or classified as uncollectible • Non-exempt transactions • Do not report delinquent participant contributions or delinquent loan repayments June 20192018 Form 5500 Update 69
- 70. PwC Check the filing status after filing is submitted • Important to check the status of your submission attempt and make sure they are accepted • DOL requires at least one electronic signature be valid • Various ways to check the status: - Through the software you used to send your filing - Through the EFAST2 Filing Search webpage - Through EFAST2 Submissions webpage o If you submitted through IFILE o If you signed the filing • Also, monitor your email later for correspondence from the EFAST2/DRC email address • Note that the signed auditor’s report with financial statements must be attached as a pdf file • The pdf file cannot be encrypted or password protected - “Unprocessable error” - Remember to pdf in portrait not landscape format - Print heavy letterheads may result in rejection June 20192018 Form 5500 Update 70
- 71. PwC Form 8955-SSA • Annual registration statement identifying terminated vested participants • Report information on separated participants only on Page 2 - Do not use additional pages 1 - No attachments or other nonstandard format • Instructions to lines 6a and 6b clarified – do not include any participants who were previously reported (only report “A’s”) • Reminder – file with IRS, not EFAST2 • IRS regs issued in September 2014 make e-filing mandatory for 2014 and forward - Paper still an option for filers with under 250 filings (e.g., W-2s), otherwise file electronically through FIRE system - Penalty relief available for delinquent filers June 20192018 Form 5500 Update 71
- 72. PwC Delinquent Form 8955-SSA filings • IRS Notice 2014-35 provides relief for delinquent Forms 8955-SSA • IRS penalties waived if DOL DFVCP requirements met for related Form 5500 series filing • File a paper Form 8955-SSA with IRS (electronic forms are not eligible) • Check Line C – “special extension” and enter “DFVCP” in description • Must file delinquent Form s8955-SSA no later than 30 days after DFVCP filing June 20192018 Form 5500 Update 72
- 73. PwC DOL Enforcement The Office of the Chief Accountant (OCA) queries the ERISA database and targets Form 5500 processing errors that have gone uncorrected as well as filings improperly prepared. 1. Notice of Rejection – gives the plan administrator 45 days to make any corrections. 2. Notice of Intent to Assess a Penalty (NOI) – the plan administrator has 30 or 35 days to submit to the DOL a statement of reasonable cause. 3. Final Order– (failure to respond to the NOI) Now the matter becomes a debt due to the government. There is no appeal at this point and cannot be overturned or reduced. 4.Notice of Determination – after the DOL reviews the statement of reasonable cause the agency issues a notice of determination that contains the final penalty amount. i. The plan administrators may choose to pay the penalty or within 30 or 35 days file an answer with the administrative law judge, appealing the penalty. “30 or 35 days” – depending on how the Notice is sent. 35 days only if the Notice is sent by the DOL certified mail; otherwise it is 30 days. June 20192018 Form 5500 Update 73
- 74. PwC Expenses on Schedules H and C • Schedule H • Reports expenses paid directly by plan/trust or where employer paid an expense and is reimbursed by plan • Includes taxes (UBIT or foreign taxes paid on investments) • Includes PBGC premiums • Usually prepared on accrual basis, consistent with financial statements Schedule C • Frequently prepared on cash basis • Includes indirect fees • Does not include taxes or PBGC premiums • Note – DOL has sent letters to plan sponsors where no fees shown on Form 5500 June 20192018 Form 5500 Update 74
- 75. PwC Master Trusts/Direct Filing Entities • Expenses reported at master trust level should not also be reported at plan level • All expenses must be reported – either at trust level or at plan level • Master trust footnote – review Schedule H for consistency • Remember master trusts must always file Form 5500 DFEs - Form 5500 filing is optional for 103-12 IE, CCTs and PSAs - 103-12 IEs must attach audited financials June 20192018 Form 5500 Update 75
- 76. PwC More on Schedule H & coordination with other Schedules • Codes used in Form 5500, Line 8a and 8b describe the benefits/features of the plan - FYI – if new employee rolling over account from prior employer, the plan administrator can check the prior employer’s Form 5500 on EBSA see if “not intended to be qualified” code “3C” is listed • Schedule C – expense information • Schedule D – existence of master trust, DFEs • Schedule G – prohibited transactions, leases or loans in default • Schedule SB and H for contributions & receivables June 20192018 Form 5500 Update 76
- 77. PwC How are DFE investments reported on Schedule H when DFEs don’t file? Entity Effect of non/deficient filing on participating plans MTIA Plan filings are deficient PSA/CCT Plans must allocate investment among Schedule H, Part I categories 103-12 IE Same as PSA/CCT + Full scope audit is required GIA Each plan must file as an individual plan June 20192018 Form 5500 Update 77
- 78. PwC Emerging issues from DOL • DOL focus on plan’s internal control environment - Lost participants – National DOL enforcement priority • In a recent IRS audit a large number of TVs and large number of large benefit payments appeared to be a trigger - Uncashed benefit payment checks – still IRS/DOL priority - ERISA spending accounts - Quality of benefit plan audits • New Compliance Questions – 2020 Changes on hold • Increase in penalty amounts for late filings • Puerto Rico – disaster area – attach statements • Contact person – be sure to list current • Benefit features codes – more scrutiny June 20192018 Form 5500 Update 78
- 79. PwC PBGC Expanded Missing Participants Program • From the Pension Benefit Guarantee Corporation: • Final rule published December 22, 2017 • Program is voluntary for terminating plans that are not insured by PBGC • Replaces the IRA rollover as an option to roll the assets to the PBGC • PBGC encourages all eligible plans to use the program to help connect missing participants with their benefits • Expanded program applies to plans terminating in or after January 1, 2018 June 20192018 Form 5500 Update 79
- 80. PwC Questions? Wendy.Vitale@pwc.com 678-419-1229 Cynthia.G.Herendeen@pwc.com 646-508-4012 This webcast presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this webcast presentation without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this webcast presentation, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this webcast presentation or for any decision based on it. © 2019 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 80 June 20192018 Form 5500 Update
- 81. pwc.com Thank you © 2019 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.