Changes to the 2015 ERISA Annual Reports (Form 5500)

by: Smith and Howard

February 9, 2016

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We wanted to alert sponsors to additional changes anticipated for the 2015 Annual Return/Report of Employee Benefit Plan (Form 5500) and Short Form Annual Return/Report of Small Employee Benefit Plan (Form 5500-SF), based on initial drafts of the 2015 Form 5500 series released in December 2015 by the U.S. Department of Labor (DOL), Internal Revenue Service (IRS) and Pension Benefit Guarantee Corp (PBGC). Some of the more significant changes on the Form 5500 series are highlighted below:

Plan Trust’s Financial Activity

Several compliance questions have been added to the 2015 Form 5500 Schedules I and H and Form 5500-SF. While optional for 2015, the IRS nonetheless is encouraging sponsors to answer these questions. Even if a sponsor elects not to respond for 2015, be aware that these questions will likely require additional time and preparation for the 2016 plan filing year when the requirement to answer becomes mandatory.

  • Schedule H and Schedule I, Line 4o and Form 5500-SF, Line 10j ask “Did the plan trust incur unrelated business taxable income during the year?” This question relates to unrelated business income tax (UBIT), which according to IRS Publication 598 means the plan has incurred gross income derived from an unrelated trade or business unrelated to the plan’s exempt purpose within the trust.  Generally, this results from alternative investments within a plan such as partnerships and real estate investments.  UBIT can result in a tax consequence for the normally exempt trust and should be evaluated by an experienced tax professional.  Although the Form 5500 instructions note that Form 990-T, Exempt Organization Business Income Tax Return, is required for gross income of $1,000 or more, there may be additional tax benefits of filing 990-T in years when the gross income is $1,000 or less.  Plan sponsors should consult with their investment and tax advisors when making a determination regarding UBIT and the related tax filing.
  • Form 5500 Schedule H and Schedule I, Line 4p and Form 5500-SF, Line 19 ask “Were in-service distributions made during the plan year?” In-service withdrawals include pre-retirement distributions while actively employed as well as hardship distributions. It also includes amounts withdrawn from a profit sharing plan after a fixed number of years and withdrawals from plans subject to minimum funding including a money purchase plan at age 62 and defined benefit plans. Note the dollar amount of these distributions is required to be reported. 

Additionally, the name of the trustee or custodian of the plan (along with their contact information) has been added to both the Form 5500 and Form 5500-SF series.

Plan Qualification Requirements and Compliance under Internal Revenue Code (Section 6058)

Schedule R (Part VII) and Schedule SF (Part IX) asks specific compliance questions related to discrimination testing, including:

  • 401(k) plan testing questions
  • Whether the plan satisfied nondiscrimination requirements
  • Questions related to plan’s favorable determination letter status
  • Updates related to plan amendments
  • Whether the plan is maintained in a U.S. Territory 5500-SF also contains an additional question as to whether minimum distributions were made to 5% owners who have attained age 70 ½ (whether or not retired). 

Specifically related to nondiscrimination testing, there is a question regarding which method a 401(k) plan utilized to satisfy the ADP/ACP testing, including the current year testing method and safe harbor designed based methods. Sponsors must also indicate whether the ratio, average benefit test or permissive aggregation was utilized to satisfy 410(b) and 401(a)(4). In regards to plan qualification, the Plan sponsor must indicate whether the plan was timely amended to comply with all required tax law changes, date of the amendment or restatement and applicable code and date of the favorable IRS opinion or determination letter based on the plan document type as pre-approved master and prototype or individually designed. Plan sponsors will need to work closely with their benefits professionals in order to correctly answer these questions.

Form 5500-SUP

The IRS has issued 5500-SUP, Annual Return of Employee Benefit Plans Supplemental Information, as a separate filing for the compliance questions that are also covered on the Form 5500 series. Electronic filing of the Form 5500 for plan years beginning on or after January 1, 2015, is required by the IRS for Form 5500 series filers who file at least 250 returns (including Form W-2, corporate returns). Sponsors already meet this requirement since these returns have been required to be filed electronically with the Department of Labor at EFAST2 since 2009. IRS has provided Form 5500-SUP for sponsors who file fewer than 250 tax returns of any type and choose not to answer the IRS compliance questions electronically through the EFAST2 system. However, sponsors will be able to satisfy the compliance filing requirement by answering the new questions on Form 5500 or Form 5500-SF and filing through EFAST2.

Defined Benefit Plans

Modifications to Schedule MB include a new question that requires multiemployer defined benefit plans with 500 or more total participants to provide an attachment of projected benefits to be paid over the next ten years, including the current filing year. This specifically applies to plans in critical and declining status. 
Schedule SB instructions are modified to simplify the attachment required for cash balance plans with 1,000 or more active participants.  These changes are mandatory for the 2015 filing year and must be answered.

The changes are in addition to the previous revisions to the 2014 Form 5500 so sponsors may need to proof more closely to ensure any mistakes (even seemingly minor ones) are caught before submission. As was noted in the Summer 2015 edition, incorrect filings can expose a plan and/or sponsor to enforcement agency scrutiny and/or penalties.

For more information on Smith and Howard’s Employee Benefit Plan Services, please contact Sean Spitzer, CPA at 404-874-6244 or simply fill out our form below.

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