April 26, 2010 David O. Reyes CPA - Benefits Tax Compliance Pam Lebold CPA - Risk Management

 Greater Transparency  More Disclosure  Accountability

 Form 5500 Overview ◦ What plans must file ◦ 5500 and required Schedules  Changes affecting the 2009 Form 5500 ◦ Changes to the 2009 Forms ◦ 403(b) Plan expanded reporting requirements ◦ New Electronic Filing Requirements  457/Deferred Compensation Plan Compliance  Excess Benefit Transactions

 Who must file?  Pension and Welfare Benefit Plans subject to ERISA  Pension Plans-401(k), 403(b), Pension, Profit Sharing  Welfare Benefit-Medical, Dental, Life Insurance, Disability etc.  Types of Welfare Benefit plans-Funded (Trust) and Unfunded (Insurance/Self Insured)

 Most Welfare Benefit plans are Insured “unfunded arrangements”.  Unfunded plans have filing exemption <100  Unfunded plans >100 participants must file  Other plans exempt from filing-SIMPLE, SEP, Church Plans, Government Plans  Due date is last day of the 7 th month after end of plan year. 2 ½ month extension available, Form 5558.

 Form 5500 and Schedules ◦ Schedules filed are dependent of type of plan, size of plan, and plan features ◦ Large plan vs. Small plan ◦ Most Common Schedules for all plans  Schedule A- Insurance  Schedule D-Investments in Pooled or Collective Funds  Schedule I (Small Plan)- Balance Sheet and Income Statement, Questions on plan operations  Schedule R –Distribution reporting, plan funding and coverage information

 Schedules only for large plans ◦ Schedule C- Service providers paid > $5,000 ◦ Schedule G-Reporting loans and prohibited transactions ◦ Schedule H-Income statement, balance sheet, accountants opinion, questions about the plan ◦ The accountants opinion is the most significant difference between a large and small plan  Form 5500 and Schedules open to public inspection

 Significant penalties may be assessed for late filings ◦ DOL $1,100/day ◦ IRS $25/day capped at $15,000 per year  Delinquent Filer Voluntary Compliance Program is available from the DOL ◦ Penalty reduced to $10/day ◦ Per plan cap - multiple filings ◦ Avoids both DOL and IRS full penalties

 Changes to some of the Schedules  Expanded filing requirements for 403(b) Plans beginning with the 2009 filing  New Electronic Filing requirements effective for plan years beginning in 2009

 Continues to be limited to large plan filers, and the $5,000 reporting threshold was retained  Requires direct compensation paid by the plan to be reported on a separate line from indirect compensation received from sources other than the plan or plan sponsor  Additional codes added to types of services provided  Alternative reporting option: Indirect compensation  New Part II: Identify each service provider that failed or refused to provide the information necessary to complete Part I

 Form 5500 ◦ New pension plan characteristics codes ◦ Question on number of contributing employers ◦ Optional line for principal preparer has been deleted  Schedule A ◦ Identify insurers that fail to supply information  Schedule H ◦ Large plan failures to pay benefits due ◦ Schedule of delinquent participant contributions – Questions on blackout compliance ◦ Reporting of mutual fund dividends

 Schedule I ◦ Small plan failures to pay benefits due ◦ Questions on blackout compliance ◦ Separate disclosure of fees paid to administrative service providers  Schedule SSA ◦ No longer required beginning with 2009 filing ◦ Replaced with IRS Form 8955-SSA  Attachments Under EFAST 2 ◦ Accountants opinions/financial statements ◦ Actuary attachments to Schedule SB ◦ Attached to the 5500 in pdf or plain text files (ASCII)

 On Nov. 16, 2007, the Department of Labor (DOL) issued “Annual Reporting and Disclosure; Revision of Annual Information Return/Reports; Final Rule and Notice”  The exemption in section (b)(3) is being eliminated, with the result that 403(b) plans subject to Title 1 will now be treated the same under the regulations as any other Title I pension plan for purposes of the annual report requirement under Title I of ERISA.

 Effective for 2009 filings, ERISA covered 403(b)’s are required to file a complete 5500  Must complete all the same schedules as a 401(k) plan  Large plans will require Schedule H and accountants’ opinion with financial statements  FAB , DOL ruling which allows plan auditor to exclude certain plan participants and their investments for 5500 and audit purposes 

 EFAST2 replaces EFAST1  Electronic filing becomes mandatory with EFAST2 for plan years beginning on or after 1/1/09 ◦ Required for retirement and welfare plans ◦ Exception: Form 5500-EZ electronic filing not available ◦ Form 5500-EZ may elect to file a Form 5500-SF and electronically file ◦ Also applies to 403(b) plans, except those not subject to Title I of ERISA  Any plan which has a due date before 1/1/10 will automatically have an extension until 90 days following the date on which the Form 5500 is available for filing electronically (i.e. 3/31/10) ◦ Short plan-years are encouraged to wait and file electronically, but it is not required – May file utilizing the prior year’s form and mail the forms

 Software: Three options ◦ A private, Web-based system ◦ A third-party software application ◦ DOL’s Web-based system (IFILE)  Registration with EFAST2 ◦ Began 1/2/2010 ◦ Must register if using IFILE or third-party software ◦ and click “Register” ◦ If you are registered for EFAST1, you will need to register again for EFAST2 ◦ All persons who touch a Form 5500 in any way, including signers, will need to register with EFAST2 and obtain a user ID and PIN ◦ DOL will limit one set of log-in credentials per address – can’t obtain signature authority for the client

 When registering, disclose what user types(s) you are. The type selected affects the available menu. ◦ Filing author (return preparer) ◦ Filing signer (person who signs the return) – individuals, not plan sponsors/entities – Schedule author (schedule-only preparer – i.e. actuary and Schedule MB or SB) – Transmitter (party who transmits the electronic return) – Third-party software developer

 IFILE – the basics of how it works ◦ Complete forms on screen by navigating through each section of each form ◦ Add forms by clicking on the schedule name/letter from a menu and completing the form ◦ Add attachments such as the accountant’s opinion/report  Accountant’s opinion/report MUST be in PDF format only, as it requires a signature  Other attachments can be PDF or text files  2GB limit on the size of the electronic file; large attachments will not be able to be transmitted  Once preparation is complete, associate a signer ◦ Provide signer’s address ◦ Program searches and matches the address to those registered with EFAST2 ◦ If the signer is registered, an will be generated informing the signer that a return is awaiting their signature ◦ If the signer is not registered or if the address entered is incorrect, an error message will be displayed

Other items ◦ Plan sponsor must maintain a paper copy of the electronic return, complete with original signatures ◦ Extension procedures will not change (although Form 5558 will no longer be required to be attached to the Form 5500) ◦ Amending pre-2009 forms or filing pre-2009 forms late under DFVC program must do so electronically  DFVC - Use current year forms and indicate the dates  If amending, you must resubmit the Form 5500 and all of the schedules included with the original filing (even those that remain unchanged)  Must reference the original acknowledgment ID with the amended filing

 Two types - 457(b) and 457(f)  Only available to nonprofit organizations  Focus on 457(b) plans  Two common issues ◦ Proper timing of FICA withholding ◦ Failure to file proper Top Hat filing

 IRC Section 4958  Penalty on the individual for non-fair market value transactions  Most common: unreasonable compensation  Individuals are “disqualified persons” or insiders

 1 st tier penalty: 25% of the excess benefit  2 nd tier penalty: 200% if correction not made  Penalty cannot be paid by organization  How to correct excess benefit

 College President’s comp & benefits = $400,000  Assertion that reasonable compensation = $300,000  Excess benefit = $100,000  1 st tier penalty = $25,000  Correction = pay $100,000 back to College

 Shifts burden of proof to IRS  3 requirements: 1.Persons making decision are independent 2.Comparability data 3.Contemporaneous documentation  990 questions