• 2009 Form 5500 Issues
  • September 28, 2010
  • Law Firm: Miller Nash LLP - Portland Office

    As most of you know, the United States Department of Labor (the "DOL") launched a new fully electronic processing system known as EFAST2 on January 1, 2010. EFAST2 receives and processes all Form 5500 filings. Nearly all the Form 5500 filings (including schedules and attachments) submitted through EFAST2 will be available (generally within 24 hours) to the general public on the DOL's electronic public disclosure room website at www.efast.dol.gov.

    There have been extensive changes to the forms and filing procedures. This article is not intended to be a summary of all the new requirements, but merely a list of a few important reminders and helpful tips.

    • No Paper Allowed. All pension plans (including 403(b) plans that are subject to Title I of ERISA), welfare plans, and Direct Filing Entities ("DFEs") that are required to file a Form 5500 (or the new Form 5500-SF (see below)) must file electronically for plan years beginning on or after January 1, 2009, using EFAST2. Except for a limited exception until October 15, 2010, for delinquent and amended 2008 Form 5500 filings, you can no longer file a paper Form 5500 by mail or a delivery service.

    • October 15, 2010, Due Date. October 15, 2010, is the due date for the 2009 Form 5500 filing for calendar year plans that filed an application for extension on Form 5558 (see below). The Form 5500 filing is due by midnight in the plan administrator's time zone, as determined by the plan administrator's address in line 3a of the Form 5500.

    This is the first major deadline under the new system, and the DOL expects a very heavy volume of filings immediately before the deadline. Of course, filing early is the best approach, but if you try to file and there is a problem and your Form 5500 filing is not received by EFAST2 before the deadline, it is recommended that you print the unsuccessful notice and include it with the resubmitted Form 5500 tagged as an "other attachment." This will at least be evidence that you attempted to file timely. The DOL has said that, in assessing penalties during the first year, it will take into account "technical and logistical obstacles" if the plan administrator acted prudently and in good faith in attempting to complete the Form 5500 filing.

    • Method of Filing—Third-Party Software or IFILE. Filers may choose to file the Form 5500 using either:

      • EFAST2-approved third-party software; or
      • The DOL's free IFILE system, which is on its website at www.efast.dol.gov.

    Historically, 90 percent of filers have used approved third-party software. The DOL has encouraged filers to continue to use third-party software because the IFILE system is limited and is designed primarily for those filers who previously used the government-issued hand-printed forms for simpler filings. Most Form 5500s are prepared by third-party administrators or other service providers using approved software. If, however, you are preparing the Form 5500s for your plans with no outside assistance, you will need to use the IFILE system.

    The DOL has issued many pieces of guidance, including Frequently Asked Questions, which are available on its website, and you can also call the EFAST2 Help Line at 1-866-GO-EFAST for assistance. The website and Help Line are valuable tools for all filers.

    • Electronic Signatures and Paper Copies. Under EFAST2, all Form 5500s must be signed electronically. The Form 5500 includes separate signature lines for the plan administrator and the employer/plan sponsor. Traditionally, if the employer was both the plan sponsor and the plan administrator, one individual may have signed on either line. Under EFAST2, any Form 5500 that is not electronically signed by the plan administrator will be subject to rejection. EFAST2 assumes that the person signing as the plan administrator is also signing as the employer/plan sponsor if that line is left blank.

    Any person required to sign a Form 5500 must register on the DOL's website to obtain "filing signer" credentials (a PIN and USER ID). Third-party preparers cannot register for filing credentials for their clients, and the DOL specifically prohibits signers from providing their PIN information to third-party preparers. In response to requests from many practitioners, the DOL announced a new e-signature option on May 13, 2010. Under the e-signature option, the third-party preparer can get its own signing credentials and submit the electronic Form 5500 for the plan administrator, but both the third-party preparer and the plan administrator must satisfy certain conditions that may not be acceptable to them. For example, the plan administrator must manually sign a paper copy of the Form 5500, and that signature will be part of the Form 5500 that is posted on the DOL's electronic public disclosure room website. Additional information on the e-signature option is on the DOL's website.

    Although the Form 5500 is filed electronically, plan administrators must keep a paper copy of the Form 5500 (including all the schedules and attachments) with all the required signatures on file as a part of the plan's official records. Filers may use electronic media to store the copy as long as all the signatures are visible in that copy.

    • Attachments to the Form 5500. There have been many questions on the filing of attachments. The EFAST2 system accepts only two types of attachments—PDF documents and those in text-only format. The PDF documents may be generated either from the document software (e.g., Word or Excel) or from scanning a printed copy of a document. A PDF file that has been encrypted or password-protected to restrict editing, printing, or viewing cannot be included as part of the Form 5500 filing. It will cause the electronic submission to fail completely, and EFAST2 will have no record of an attempt to file timely. PDFs that have been signed or certified with a digital ID can be successfully transmitted and are a good alternative to ensure that the attachments are valid and have not been tampered with.

    The required Schedule H "Accountant's Opinion" attachment must be submitted in PDF format because it is required to contain an image of the accountant's signature. The DOL has clarified that this attachment includes the entire auditor's report, including the opinion, financial statements, notes, and supplemental schedules.

    The DOL's Frequently Asked Questions 24-29 on its website provide detailed information on attachments, including how to handle multiple attachments if all the data required for those attachments is provided in a single document.

    • New Form 5500-SF. The new Form 5500-SF is an optional, simplified annual report filing for use by certain small pension and welfare benefit plans. To be eligible, the plan must:

      • Be a small plan (generally have fewer than 100 participants at the beginning of the plan year);
      • Meet the conditions for being exempt from the audit requirement;
      • Hold no employer securities;
      • Not be a multiemployer plan; and
      • Have, at all times during the plan year, 100 percent of its assets invested in certain secure investments that have a readily ascertainable fair market value.

    The Form 5500-SF is available to 403(b) plans and "one-participant" plans, but not to ESOPs or DFEs. The investment restrictions listed above do not apply to "one-participant" plans. Form 5500-SF filers do not file a Schedule A, C, D, I, or R, but a defined benefit plan or money purchase plan may be required to attach a Schedule SB or MB, if appropriate.

    • One-Participant Plans. The definition of a "one-participant" plan has changed. In general, a "one-participant" plan is a pension plan covering the sole owner (and his or her spouse) of a trade or business or partners in a partnership (and their spouses) but no employees. Unless a "one-participant" plan satisfies certain conditions for not having to file any annual return, it must file either the Form 5500-SF electronically or the Form 5500-EZ with the Internal Revenue Service (the "IRS") on paper. A Form 5500 may not be filed, and not all "one-participant" plans are eligible to file the Form 5500-SF. If you are filing for a "one-participant" plan, you should review the instructions to both forms carefully to determine which you should file or whether the plan is exempt. Even if you can elect to file the Form 5500-SF, you may want to continue filing the Form 5500-EZ with the IRS on paper to avoid having the plan's information posted on the DOL's electronic public disclosure room website.

    • Changes to the Form 5500 and Schedules. There have been numerous changes to the Form 5500 and the schedules, which are outlined on pages 1 and 2 of the Form 5500 instructions. A few of the changes are as follows:

      • Schedule A—Fees and commissions formerly reported on line 2 are now clarified and broken out on lines 2 and 3, and a new Part IV has been added for plan administrators to report insurance companies that fail to provide information necessary to complete the Schedule A. The instructions state that insurers must be notified that they will be reported.

      • Schedule C—The revised Schedule C significantly expands the plan's reporting of its service providers' indirect compensation. There has been considerable confusion about how to complete the Schedule C for 2009 because of the complexity of the new rules and because new regulations that require service providers to disclose information about their compensation were not finalized until July 16, 2010, and are not effective until July 16, 2011. Despite the disclosure regulations' later effective date, all service providers that receive $5,000 or more of direct or indirect compensation in connection with services rendered to the plan must provide information about that compensation to the plan so that it can complete the Schedule C. Subject to a good faith exception (which requires certain documentation), plans must identify on the 2009 Schedule C any service providers that fail to provide the necessary information. The DOL has issued two sets of Frequently Asked Questions about the Schedule C that are available on its website.

      • Schedules E and R—The Schedule E has been eliminated, and a new Part IV has been added to the Schedule R for reporting certain ESOP information that was formerly reported on the Schedule E.

      • Schedules H and I—New line items have been added for the plan administrator to report whether there was a backout period during the plan year and, if so, whether the proper notices were provided.

    • IRS Form 5558, Application for Extension. The IRS was expected to revise the Form 5558 in early 2010 to apply to the new Form 5500-SF and Form 8955-SSA (see below), but it has not yet updated the form. The IRS has informally said that the reference on Form 5558 to the "Form 5500" should be interpreted to extend to the Form 5500-SF as well. No extension of time is required for the 2009 Form 8955-SSA. The Form 5558 must be filed on paper with the IRS in Ogden, Utah, on or before the due date of the Form 5500, Form 5500-SF, or Form 5500-EZ. The IRS has recently begun issuing correspondence acknowledging receipt of the request for extension. A copy of the Form 5558 is no longer filed with the Form 5500 filing, but a copy of the Form 5558 and the IRS correspondence acknowledging receipt, if any, must be maintained in the plan's records.

    • New IRS Form 8955-SSA and Social Security Information. The Schedule SSA has been eliminated from the Form 5500 filing because it contained protected social security information that cannot be posted on the DOL's electronic public disclosure room website. Also, it is important not to enter a social security number in response to questions asking for an employer identification number ("EIN"). Including a social security number on the Form 5500 or on any schedule or attachment may cause the entire Form 5500 filing to be rejected.

    The Schedule SSA will be replaced by the new Form 8955-SSA, which will be filed directly with the IRS on paper. Plans are not, however, required to file the Form 8955-SSA for the 2009 plan year and subsequent plan years until further guidance is issued by the IRS. The IRS is currently preparing the new form, which should be very similar to the Schedule SSA. It is expected that the IRS will establish a special due date in 2011 for the 2009 Form 8955-SSA or delay it until the 2010 Form 5500 filing is due. After the initial filing, the Form 8955-SSA will be due at the same time as the Form 5500 or Form 5500-SF, but it will be filed separately with the IRS. If the Form 8955-SSA is not timely filed, the DOL has indicated that it will treat the Form 5500 filing as incomplete.

    • Intranet Posting of Form 5500 by Defined Benefit Plans. The Pension Protection Act of 2006 (the "PPA") requires that identification and basic plan information and actuarial information included in the Form 5500 be posted on the plan sponsor's intranet website (or a website maintained by the plan administrator on behalf of the plan sponsor) that is used for the purpose of communicating with employees and not the public. A plan sponsor is not required to establish an intranet website solely for this purpose.

    The DOL has not yet issued formal guidance on this posting requirement, so there are many unresolved questions. It appears that it is sufficient to post the two-page Form 5500 and the Schedule SB (or the Schedule MB for multiemployer plans) without attachments. But the model annual funding notices contain paragraphs to include if a plan's entire Form 5500 filing is available on an intranet website. Because of that language and the fact that the participants will now have access to the entire Form 5500 filing (including the Schedule SB or MB and all attachments) on the DOL's electronic public disclosure room website, a plan sponsor may want to post the entire Form 5500 filing instead.

    The PPA requires the DOL to display the required information on its website within 90 days after the date on which the Form 5500 is filed by the plan sponsor, but it does not specify a deadline for the plan sponsor to post it. Until further guidance is issued, it is best to post the information as soon as administratively possible after the Form 5500 filing is submitted, but no later than 90 days after that date.