ASPPA Webcast Highlights Form 5500 Changes, Practices

The July 31, 2019 deadline for most employee benefits plans that must file the Form 5500 for reporting about 2018 is fast approaching. So the June 20 ASPPA Webcast, “Form 5500 Update,” was a well-timed reminder regarding changes that affect the form and its use and filing.

Presenter Stephen Forbes, an ERISA attorney with Forbes Retirement Plan Consulting, offered a comprehensive look at the Form 5500 and what retirement plan professionals need to know about it and recent developments affecting it. Forbes stressed that the form is of central importance as a source of information about a plan. “The 5500 is the window to the retirement plan,” said Forbes.

What’s New

The good news, Forbes said, is that recent changes to the Form 5500 are not significant. He added that the Trump Administration will not be pushing the changes to the form that had been proposed a few years ago, which he called “fairly significant.” Said Forbes, “For the time being, I don’t think we’re going to be seeing those.”

One of the changes, Forbes noted, is that the name of the Form 5500 has changed from “Annual Return of One-Participant (Owners and Spouses) Retirement Plan” to “Annual Return of One-Participant (Owners/Partners and Spouses) Retirement Plan or a Foreign Plan.” This change, he indicated, reflects the use of the form, but aside from that, “nothing really has changed in the 5500-EZ.”

Another change, Forbes reported, is that the principal business activity codes have been updated to reflect certain updates to the North American Industry Classification System.

The Department of Labor (DOL) has updated the instructions for the Form 5500 to reflect an increase in the maximum late filing penalty. And, Forbes said, the penalties have been increased since the instructions were written. Then, he noted, the penalty was $2,140 per day; now, however, it is $2,194 per day. The DOL also has modified the instructions for Lines 5 and 6 of the form to make it clear that welfare plans complete only lines 5, 6a(1), 6a(2), 6b, 6c and 6d. “The rules haven’t changed, but the DOL was finding that a lot of mistakes were being made,” said Forbes.

Schedules to the 5500 have been updated too, Forbes said. For instance, Schedules R and SB have been updated to reflect the guidance in Revenue Procedure 2017-56 regarding funding methods. And an employer doesn’t need to file a Schedule R under certain circumstances:

An employer doesn’t need to file the Schedule R if:

1. The plan uses, as the sole funding vehicle for providing benefits, IRAs or IRA annuities.

2. The employer can answer “true” to either of these statements: 

• The plan is a profit-sharing plan (including a 401(k) plan) and the plan didn’t make a “distribution” during the plan year other than corrective distributions or deemed distributions; or
• The plan is a profit-sharing plan (including a 401(k) plan) and the plan satisfies the following requirements: (1) all plan distributions were in the form of cash, annuity contracts, life insurance, marketable securities, or loan offsets, and (2) the plan used the employer’s EIN to report distributions on 1099-R.

3. The plan satisfies all the following requirements:

• the plan is not a DB or money purchase plan;
• no plan benefits that would be reportable on Line 1 were distributed during the plan year;
• no benefits (cash or property) were paid during the plan year on a1099-R, using an EIN other than that of the plan sponsor or plan administrator (this condition is not met if benefits were paid by the trust);
• unless the plan is a profit sharing, ESOP, or stock bonus plan, no plan benefits were distributed during the plan year in the form of a single-sum distribution;
• the plan is not an ESOP; and
• the plan is not a multiemployer defined benefit plan.

Forbes also noted that the IRS is more interested than the DOL regarding the in-kind property distributions reported on line 1 in Part I of the Schedule R.

Audits and Investigations

The Form 5500 figures heavily in audits and investigations, Forbes indicated, saying, “If your client is wondering why it is being audited or investigated by the IRS or DOL, they probably need look no further than the Form 5500.” He noted that “within a few months of filing the Form 5500, the DOL often sent thousands of letters or emails to plan sponsors requesting amendments or explanations of responses on the form or schedules.”

Forbes addressed what may trigger an audit or an investigation by the IRS and/or DOL. Neither the IRS nor the DOL release an official list of the responses and information reported on the Form 5500 that will trigger an audit or investigation, Forbes said; nonetheless, the issues they target, DOL correspondence and statements DOL and IRS officials make provide an idea. For instance, he said, “If you don’t include a Schedule A, you’re likely to get correspondence.” And Forbes advised taking contact from the DOL seriously. “You don’t want to deal with the DOL if you don’t have to,” he said, warning that it “takes time and is costly.”

Webcasts Available

More information about upcoming ASPPA webcasts is available here. The webcast “Form 5500 Update” is available on demand through June 19, 2020; information is available here.