On May 25, 2007, Joe Canary, deputy director, Office of Regulations and Interpretations for the Department of Labor’s Employee Benefits Security Administration (EBSA), confirmed that the requirement to file Form 5500 electronically will be implemented for plan years beginning on or after January 1, 2009, rather than January 1, 2008, as previously announced. He acknowledged that many in the pension industry, including ASPPA, had asked for a delayed effective date because of the volume of changes that would be needed to information and recordkeeping systems, the time needed to train staff and, in general, getting the plan sponsor community on board with the new requirement.

Effect on 2007 and 2008 Filings
The DOL intends to issue guidance this summer to explain how PPA changes will affect 2007 and 2008 plan year filings, including:

• How plans covering 25 or fewer participants as of the start of the 2007 plan year may file under a “simplified” reporting scheme, as authorized by PPA §1103(a). At the DOL Speaks Conference in Washington, DC, Elizabeth Goodman of EBSA indicated that plans that meet the requirements for the small plan filer relief will have the option of continuing to file under the current rules (including appropriate schedules and attachments) or under the simplified format. She refrained from stating what the simplified format would be.
  
  
• Rules for filing Schedule B for defined benefit plans with short plan years in 2008. When the 2007 forms and instructions are released this summer, the package will include the 2008 Schedule B in order to address short plan year filings for defined benefit plans that are due before the entire 2008 package is released sometime mid-2008. Typically, a short plan year filing may be made on the latest available forms; however, the PPA mandates different data collection for single employer defined benefit plans than for multiemployer defined benefit plans under PPA §503 for plan years beginning after 2007 so it is necessary for the agencies to make decisions about those forms now.
  
  The 2007 Schedule B will, for the most part, be identical to the 2006 schedule. It is anticipated that the 2008 portion of the package will contain only the Schedule B, Schedule SB and Schedule MB and instructions for use in preparing 2008 short plan year filings for those plans required to file Schedule B. [See http://www.dol.gov/ebsa/pdf/2008-5500-Schedule-SB.pdf for a draft of Schedule SB for single employer plans and http://www.dol.gov/ebsa/pdf/2008-5500-Schedule-MB.pdf for a draft of Schedule MB for multiemployer plans.] The DOL indicated that the drafts issued in December 2006 will be finalized and used as an attachment to Schedule B as an interim solution.
  
  It should be noted that the drafts of the SB and MB have no 2-D barcode, which is required for normal processing under the current EFAST program, so expect these schedules to be attachments for 2008. When the EFAST2 system is implemented, there will be no barcodes on any of the forms so the SB and MB will be electronically processed.
  
  
• Likewise, the proposed Schedule R includes certain information required under PPA for defined benefit plans. Expect a temporary “fix” for this schedule in 2008, perhaps as an attachment. [A draft of Schedule R is available at http://www.dol.gov/ebsa/pdf/2008-5500-Schedule-R.pdf .]

It should be noted that Act §1103(a) also calls for an increase in the dollar threshold for requiring Form 5500-EZ filings for certain one-participant plans from $100,000 to $250,000. IRS is formulating the transition rules that will apply to this new provision. Currently, there is no indication what direction the IRS will go with this change; however, those rules will be made public with the release of the 2007 forms later this summer.

Proposed E-Filing Forms
Joe Canary informed the DOL Speaks audience that the agency will be finalizing all of the proposed forms in a package to be released later this summer, presumably after the 2007 forms release date. The good news here is that service providers will have plenty of time to adapt systems and data collection procedures. The downside is that, as mentioned above, the EFAST2 system is not under development yet, so we will not get particulars about how electronic filing will be accomplished or, for example, what e-signature requirements will apply.

Some other issues discussed during the program:

• It is expected that at least 60% of filers — there’s nearly 1.2 Million filings annually - will have the option of filing the new Form 5500-SF (short form) because the plan covers fewer than 100 participants and has readily valued assets and no employer stock. See ASAP 06-25 for further information.
• In lieu of filing Form 5500-EZ as a paper filing, sponsors of one-participant plans may use Form 5500-SF to make the filing electronically when mandatory e-filing is effective.
• Many §403(b) plans will have the option of filing Form 5500-SF. For those §403(b) plans currently filing the abbreviated Form 5500, the “80/120" rule will apply as though the plan had filed as a small or large plan in prior years to the extent it was properly reporting during those years. For example, a §403(b) plan with 88 participants as of January 1, 2008 files the appropriate 2008 Form 5500. If that plan covers 104 participants as of January 1, 2009, it may continue to file as a “small” plan for 2009.
• Proposed changes to Schedule C expand the disclosures related to payments made from plan assets, especially those that are not so visible because the payment does not directly affect the plan’s balance sheet. However, the Schedule C will not capture any payments for plan services that are paid directly by the plan sponsor. Financial institutions, insurance companies and other investment providers are already scrambling to devise methods of generating the information needed by preparers.

Schedule SSA will not be part of the Form 5500 package under the mandatory e-filing program. Instead, Form SSA will be filed with IRS; however, no details are available at this time regarding the forms or process.

In Closing
By the end of this summer, we should have better direction on forms and PPA reporting rules that become effective in 2007 and 2008. Stay tuned!

Something must be in the air. In the past few months, I’ve had a rash of inquiries about submitting late filings through the DOL’s delinquent filer program when you may not have information for all of the years for which filings are outstanding. As a general rule, a plan is expected to file Form 5500 reports for all outstanding years when submitting under the DFVC.

In many instances brought to my attention, the plan sponsor may not have all of the information needed to fully complete Form 5500 for certain years. Further, some filings may require auditor’s reports in order to be complete. These issues are exacerbated when the late filings go back to the 1990s!

The following examples will give you some idea of the range of issues presented to me:
Example 1. A retirement plan practitioner has begun providing services to a plan sponsor that has maintained a profit sharing plan since 1990. The plan filed as a “small plan” through the 1998 plan year, but has failed to file any Form 5500 reports for the 1999 through 2004 plan years. The plan is treated as “large plan” beginning in 1999 and, therefore, the filing should include the report of an independent qualified public accountant. The practitioner asked me if there was any relief from engaging an auditor all the way back to 1999. The client is quite willing to work through the DFVC program, including payment of the penalty imposed under the rules of that program.

Example 2. A company engaged a new accounting firm to provide services to the business. As part of the takeover process, the accounting firm discovered that the company had never filed Form 5500 for its welfare plan. The company had filed Form 5500 for its cafeteria plan but only through the period required by IRS. There has been a lot of turnover in the company’s HR department over the past few years and it’s difficult to identify when Form 5500 filings should have begun for the welfare plan. The accounting firm asked me how far back the client should go when it submits under DFVC and pays the penalty imposed under the rules of that program.

Example 3. A mom-and-pop operation has begun working with a retirement plan consultant. They immediately realized that Form 5500 filings have never been made, although they have been required since the plan was established in 1992 using an institution’s prototype document. The plan covered not only the owners, but a handful of employees over the years. The consultant asked me how in the world they are supposed to prepare filings back to 1992! Again, the plan sponsor is willing to submit the late filings under the DFVC program, but just how far back do they have to go?

These situations aren’t as unusual as you might think, particularly the issue raised in the second example. Welfare plans are not given much attention when it comes to filing requirements. I’ve often said the best consulting advice that a retirement plan service provider might offer occurs when the retirement plan population spikes over 100. They may be the only service provider who is tuned in to the employee count and aware of Form 5500 filing requirement - many companies that start out small are never told by any of their advisors that Form 5500 is required for insured (or unfunded/uninsured) welfare benefit plans that cover 100 or more participants as of the first day of the plan year. Unlike retirement plans that have a filing requirement regardless of participant count, welfare plans are not on the radar screen until that 100 life threshold is crossed.

DOL has always stressed to me its desire to get plans caught up as best they can but, more importantly, get them in the system and on track for future filings. In speaking with the Department about some of the above examples, it was agreed that at some point everyone has to be practical about how much can be done to bring a plan’s filings up-to-date.

What are the absolute minimum requirements when submitting under DFVC? Here’s my take on what DOL may tolerate:

• 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.
• If you have more than three years’ worth of late filings, there are several suggestions.

1. Reports for earlier years should be completed with the best available information but the DOL will not attempt to tick and tie every last data element normally stored in their database. In other words, if you can’t get the Schedule A for a 1999 year filing, then prepare the 1999 filing without it. Depending on how far you have to go back, it may become a matter of reporting participant counts and not much more. What the DOL doesn’t want to see is the most recent filings perfected (as described above) and the remainder of the late filings submitted with merely name, address, and phone number data. You -- or, rather, your client -- has to put some effort into it!
2. There may be some wiggle room if your client needs to go back more than three years and those filings would technically be required to attach an auditor’s report in order to be complete. Does the plan sponsor need to get audits for all of the back years in order to clear the DFVC program? Not necessarily -- but one problem that may arise is that the auditors will not feel they have an adequate starting point for performing audits on just the last three years.
3. If the plan sponsor proceeds with these suggestions, it is advisable to include a cover letter with the DFVC filings sent to EFAST in Lawrence, KS explaining what the employer has done to gather data and that the Form 5500 filing will be amended should additional information be obtained for that plan year.The cover letter can apply to all filings being submitted late; however, attach a copy (a photocopy is sufficient) of the cover letter to each of the late filings as each will be processed individually and that will allow EFAST to image the cover letter with each year’s report. Do not send the cover letter with the payment made to the DFVC lockbox in North Carolina.

What I’m trying to get across here is that perfection is not required by those who submit under DFVC; however, a truly good faith effort is.

If you want more information about the DFVC program, go to http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html - or call 202.693.8360.

On July 21, 2006, the Department of Labor’s Employee Benefits Security Administration (EBSA), together with IRS and PBGC, released three pieces of guidance regarding the future of Form 5500. These included (1) final regulations requiring electronic filing of the Form 5500 for plan (or reporting years for direct filing entities) beginning on or after January 1, 2008, (2) proposed revisions to the Form 5500 format, content, and instructions, and (3) the Department’s regulatory impact statement and economic impact estimates. This summary will focus on the first two items, which contain the most salient information for plan sponsors and practitioners.

The Shift to E-Filing
In its August 30, 2005 proposed rule mandating electronic filing, the EBSA targeted an effective date of January 1, 2007; however, the final rule pushes off the effective date to plan years beginning on or after January 1, 2008. [See §29 CFR 2520-104a-2.] The extra time is needed because the new system to process these electronic filings has not yet been developed. The DOL has indicated it will be a web-based system and will allow for direct input over the Internet or transmission of the filings through use of approved, privately developed software such as many of use now. Beyond that, few specifics about the new process are known.

The DOL was asked in comment letters to consider relief from late filing penalties that may arise because of problems encountered during the first year of mandatory e-filing, allowing that it will be a learning experience for both practitioners and their clients as well as DOL and EFAST. In the preamble to the final rule, however, the Department made clear that it understands the community’s concern but that it believes “it would be premature at this point to announce a general exemption from annual reporting civil penalties, but the Department will remain open to reconsidering the issue” as developments warrant.

The bottom line here is that we all need to shift to electronic filing of all Form 5500 beginning in 2008; we just don’t know (procedurally or administratively) what that means yet. It should be noted that Form 5500-EZ is not subject to the mandatory filing rules, but options will be made available to allow for electronic filing of forms for “one-man” plans that are not subject to Title I of ERISA.

New Form 5500-SF
“SF” stands for “Short Form” and will remind experienced practitioners of the Form 5500-R that was in place before 1999. It is a two-page form, and would be the only filing required by pension or welfare plans that meet all of the following requirements:

• Covers fewer than 100 participants as of the first day of the plan year or would otherwise be able to file as a small plan under the 80/120 rule;
• Is eligible for the small plan audit waiver but not because of enhanced fidelity bonding (see line 4k of current Schedule I);
• Holds no employer securities;
• Has 100% of its assets in investments that have a readily ascertainable fair market value, which the proposal says includes participant loans and investment products issued by banks and licensed insurance companies that provide valuation information to the plan administrator at least once per year.

Small defined benefit plans would continue to attach Schedule B, but all other schedules would be eliminated for SF filers. Form 5500-EZ filers would be permitted to electronically file Form 5500-SF (if they otherwise meet the above requirements) to satisfy their reporting obligation or to file Form 5500-EZ on paper with IRS.

One question that arises is whether a one-man plan that files Form 5500-SF will be able to utilize the Delinquent Filer Voluntary Compliance (DFVC) program to resolve late filing issues. The TE/GE sub-group of IRPAC is exploring this possibility with IRS but any solution in this regard would be at least two years off (until the SF is in use).

The short form requires filers to provide basic plan and plan sponsor identifying information, limited participant count and financial data, and to insert plan feature codes. In addition, there are a series of compliance questions including details about fees and commissions paid from the plan, as well as any blackouts that may have occurred during the plan year. The preamble indicates that all information required to be disclosed on Schedule A must be collected and maintained by the plan sponsor even though Schedule A is not a part of the SF filing.

You can view the proposal, including a draft of the new Form 5500-SF at http://www.dol.gov/ebsa/regs/fedreg/notices/2006006329.pdf (click here).

Proposed Revisions to Form 5500
The Form 5500 and Schedules we use now will see some changes under the new system, most notably the elimination of information that was not open to public disclosure (Schedules E and SSA). Instead, three ESOP questions have been added to Schedule R and IRS will be developing rules about separately submitting Schedule SSA data.

Change for §403(b) Plans. One controversial proposed change involves requiring §403(b) plans to file a full annual report. Under the current system, ERISA-covered §403(b) plans only file a limited version of Form 5500 with none of the schedules. In addition, no accountant’s report has been required. There has been concern at both IRS and DOL that these plans have compliance issues that are not being addressed and believe that more disclosure may be part of the solution.

One §403(b) practitioner has expressed concern that this rule may not bode well for small ERISA-covered §403(b) plans and a lot of non-ERISA plans that could become ERISA plans if the proposed §403(b) regulations are finalized as is. Further, it should be noted that many eligible employers sponsor §403(b) plans because they are inexpensive to maintain compared to §401(k) and other plans. If this Form 5500 proposal is finalized in its current state, it is possible we may see many ERISA-covered §403(b) plans terminate because of the expenses associated with the recordkeeping needed to support the expanded Form 5500 filing requirements.

Schedule Changes. The following is a brief overview of the changes proposed to various schedules attached to Form 5500:

• Part IV will be added to Schedule A to help DOL identify insurance companies that do not provide complete information for preparation of the schedule. This was a disappointing “overhaul” of Schedule A. Many insurance carriers continue to provide Schedule A data in the pre-1999 format and this minor change won’t encourage the providers to be more uniform in their display of data.
• Schedule B will have a new line 12 which must be completed by plans that cover more than 1,000 participants. PBGC wants to better understand the composition of the investments so asks for percentages of assets held in stock, bonds (government, investment grade corporate, or high-yield corporate), real estate, or other categories. The Macaulay Duration [the weighted-average term to maturity of the cash flows from a bond; the weight of each cash flow is determined by dividing the present value of the cash flow by the price] must be reported for all debt securities.
• Many large plans will see the proposed changes to Part I of Schedule C as more burdensome, although not entirely surprising. The industry has been discussing the need to make the total cost of plan investments more transparent, and the proposal calls for the definition of reportable compensation to include brokerage commissions and fees charged to the plan on the purchase, sale, and exchange of investments. Other changes eliminate the current cap on the number of providers to report and require that certain providers (contract administrator, securities brokerage, insurance brokerage or agent, custodial, consulting, investment advisory, investment or money management, recordkeeping, trustee, appraisal, or investment evaluation) that receive indirect compensation (money or anything else of value) from a source other than the plan or plan sponsor must be shown on Schedule C.

A new Part II of the revised Schedule C allows preparers to identify fiduciary or service providers who failed or refused to provide information to allow the accurate presentation of the information needed in Part I of Schedule C. It’s not clear yet how the institutions will provide the data and whether preparers will experience the same sort of frustration with this data collection that has historically been part of Schedule A preparation.

• Schedules H and I, similar to Form 5500-SF, will include questions about blackout periods that may have occurred during the plan year. In addition, DOL proposes that a schedule be required when the response to line 4a is “yes” to show whether late deposits of employee contributions and loan repayments were corrected and whether the VFCP was utilized. It would be more efficient to include additional space on the form itself for disclosing this information.
• The financial section of Schedule I would be modified to require separate disclosure of administrative fees and commissions in the expense section. Again, it’s not clear how difficult this data collection effort might be.
• Schedule R will be modified to remove the coverage question at line 9 and to add questions about ESOPs and to identify contributing employers to multiemployer defined benefit pension plans.

Many of the proposed changes are improvements are welcome; others raise issues and need clarification about the information the agencies are intending to collect. Comments are due at DOL by September 19, 2006.

Many of you are in the throes of preparing Form 5558 to extend the due date for filing the 2005 Form 5500 for calendar year plans. The IRS issued temporary regulations [Reg. Sec. 1.6081-11T] on November 7, 2005 under which Form 5558 no longer requires taxpayers to provide an explanation of the need for the extension of time to file, or a signature, unless the extension is related to the time to file Form 5330. The rule affects applications for an automatic extension of time to file reports due after December 31, 2005. This makes filing Form 5558 easier for practitioners who are unenrolled preparers.

Two issues are muddying the waters on this change:

• IRS has not issued a revised Form 5558. Currently, the form revisions are expected to be released this fall, well after most of us would file Form 5558 for 2005 plan years.
• We are hearing from practitioners that DOL’s EFAST operation in Lawrence, Kansas may not be up to speed on this change and is rejecting unsigned Form 5558 that are part of a Form 5500 filing.

The Rules in a Nutshell
A signature is not required if the extension is for a 2005 Form 5500 or Form 5500-EZ. A signature is required if the Form 5558 is for the extension of time to file Form 5330.

The person who signs Form 5558 may be one of the following:

• Employer, plan sponsor, or plan administrator (or an employee of);
• Disqualified person required to file Form 5330; or
• Persons enrolled or qualified to practice before the IRS, such as attorneys, CPAs, enrolled agents or enrolled actuaries.

My Recommendation
I will admit that I continue to sign all Form 5558 that are needed for my clients; however, if you are not a person permitted to sign as described above, go ahead and file Form 5558 (without a signature) to extend the deadline for filing 2005 Form 5500. I have been rattling cages both at IRS and DOL on the apparent confusion, and am confident everyone will be on the same page in very short order.

One further suggestion. If you are not already routinely using a delivery method to ensure confirmation of your Form 5558 filings, now may be the time to consider doing so. The street address for private delivery service mailing of Form 5558 is:

Internal Revenue Service Center
1973 North Roulon White Boulevard
Ogden, UT 84404

On July 13, 2006 the Department of Labor’s Employee Benefits Security Administration, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation released advance copies of the 2006 Form 5500 and instructions. Copies of the forms, schedules, and instructions can be downloaded from http://www.dol.gov/ebsa/5500main.html#2006 (click here) but actual forms are not yet available from IRS. In addition, Form 5500-EZ is not part of the release. The most notable changes affect Schedules P and R.

Schedule P Eliminated
Beginning with 2006 plan years, the Internal Revenue Service is no longer requiring the filing of Schedule P, Annual Return of Fiduciary of Employee Benefit Trust, which has been used to satisfy the requirements of IRC §6033(a). Previously, the filing of Schedule P established the statute of limitations on assessment and collection under IRC §6501(a) for any trust that is created as part of a Code Section 401(a) plan that is tax-exempt under Code Section 501(a). This limitation on assessment applies to income taxes that might be assessed if the trust were to become retroactively disqualified or were to have unrelated business income. Under IRC §6501(a), once Schedule P is filed, any tax imposed must be assessed within three years from that filing date, whether that return was filed on or after the date prescribed (i.e., filed on extension). If no such tax assessment is made during this period, no court proceeding for the collection of that tax may begin after the expiration of the three-year period.

The IRS eliminated the need for Form 5500-EZ filers to submit Schedules B or P beginning with 2005 years, stating that the filing of the 2005 Form 5500-EZ would start the running of the statute. IRS has advised that it will be issuing similar rules with regard to the 2006 Form 5500 so that the statute of limitations is set by reference to the date the filing is made.

Schedule R Clarifications
Line 9 of the 2005 Schedule R instructs the preparer to “check the box for the test this plan used to satisfy the coverage requirements” and is followed by separate boxes for the ratio percentage test and the average benefit test. It’s clear this was not enough information for practitioners who were familiar with the rules that applied to the Schedule T (Qualified Pension Plan Coverage Information) used in prior years.

The 2006 instructions for Schedule R attempt to answer many of the questions that have been raised about the completion of line 9. For example, the instructions for line 9 now clearly state the following:

• Schedule R should not be filed if lines 1 through 8 are left blank or checked “N/A.”
• Both boxes at line 9 may be checked if each test is satisfied by one or more of the disaggregated plans.
• Multiple-employer plan filers should complete one Schedule R to report satisfaction with the coverage rules by all of the employers that participate in the plan. Check the box for “ratio percentage test,” “average benefit test,” or both, if any participating employer uses either test. Leave line 9 blank if all of the participating employers meet one of the exceptions noted [see page 56 of the 2006 instructions].
• A caution section reminds preparers that an employer using the three-year testing cycle of Rev. Proc. 93-42 must complete line 9 and that the previous exception for preparing Schedule T once every three years does not apply to Part IV of Schedule R.

Preparers should follow this guidance when completing the 2005 Schedule R. This question is around for only two more years - it disappears from the forms that will be used when mandatory e-filing is implemented.

Schedule B - Calculation of Current Liability
he instructions to the 2006 Schedule B caution that the interest rate corridor for determining current liability reported at line 1d(2)(a) may be revised. Legislation is pending which could affect the interest rate used to calculate current liability; therefore, supplements to these instructions may be issued at a later date.

Conclusion
As expected, there were no changes to the form and schedules and only modest enhancements to the instructions. DOL’s focus right now is on the mandatory e-filing project and the existing model is in “maintenance” mode for now.