Tag Archive for: reporting

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When a Governance Review Reveals Something is Missing

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“What should a plan committee include in its governance process?”

The Retirement Learning Center works with plan committees to help assess the effectiveness of their plan governance process. This process, known as a governance review, consists of reviewing various plan related documents to help assess how well the plan committee is satisfying its ERISA obligations. Recently, RLC completed a review for an organization in the Midwest and it was clear- something was missing.

We had requested and received the prior three years of agendas, meeting minutes and handouts, service agreements, the investment policy statement (IPS) and the plan document.

The documentation we reviewed was good. The meeting minutes were clear and well done; the investment review and assessment process was thorough and it appeared the IPS was followed appropriately. A solid array of investment options was maintained for the benefit of the participants.

Our concern was not what we saw but what was absent in meeting minutes and other materials.

The committee’s documentation only addressed investment-related issues and was devoid of any consideration or issues other than the investment process. Pursuant to the plan committee meeting minutes, no non-investment topics were ever discussed. RLC’s view is that  such an omission is problematic.

Good governance goes beyond oversight of the investment options. A good governance process should include ongoing

  • Fiduciary education,
  • Reviews of service agreements and standards,
  • Evaluations of plan documents and amendments,
  • Analyses of annual plan audits,
  • Checks on payroll remissions and
  • Participant notices and communication and
  • Government reporting.

Those are just a few of the key elements that a governance committee should evaluate, document and reflect in the agenda and meeting minutes.

A good governance process extends beyond oversight of the investment menu. We encourage plan officials to ensure their governance process is holistic and covers all aspects of plan operations, communications, and overall plan effectiveness.

 

© Copyright 2023 Retirement Learning Center, all rights reserved
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Reporting Coronavirus-Related Distributions

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“With the creation of Coronavirus-Related Distributions (CRDs) and the ability to pro rate the taxation and pay the withdrawal back within three years, how will retirement plan and IRA administrators, as well as individuals, report these transactions to the IRS? Won’t it be a big mess?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Washington is representative of a common inquiry related to CRDs.

Highlights of the Discussion

While we do not have definitive reporting guidance yet, we anticipate the IRS’s reporting procedures for CRDs will be similar to those the agency already has in place for “qualified disaster distributions” (QDDs). It seems we’ve been here before.

For CRDs, the IRS will waive the 10% early distribution penalty for the first $100,000 taken from an eligible retirement plan due to Coronavirus. Distribution recipients may pay back the amount within three years (2020, 2021 and 2022); and taxation can be spread over three years. The term ‘‘eligible retirement plan’’ includes an IRA (as well as an IRA-based plan), qualified plan, qualified annuity plan, governmental 457(b) plan or 403(b) plan.

Like CRDs, QDDs, were tax-favored withdrawals and repayments from certain retirement plans for taxpayers who suffered economic losses as a result of disasters like those for Hurricanes Harvey, Irma and Maria, and the California Wildfires. The most recent IRS Publication 976, Disaster Relief and Forms 8915-A, 2016 Qualified Disaster Retirement Plan Distributions and Repayments and 8915-B Qualified 2017 Disaster Retirement Plan Distributions and Repayments and their instructions (Instructions to Form 8915-A and Instructions to Form 8915-B) give us a pretty good idea of what the IRS will expect for CRDs with respect to reporting. No doubt there will be some “tweaks” needed to these materials to encompass CRDs, but at least we know we are not starting from scratch!

Conclusion

When and how much of a CRD a recipient pays back (rolls over) within the next three years will dictate his or her precise reporting protocol. Reporting will not be the same for everyone. It may involve filing amended tax returns, but rest assured there will be a manageable process for plan and IRA administrators, as well as IRA owners and plan participants to account for CRDs.

© Copyright 2023 Retirement Learning Center, all rights reserved
new rules
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SECURE Act Increases Late Filing Penalties

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“What are the new higher penalties under the SECURE Act for companies that fail to timely file 401(k) plan reports and notices?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Massachusetts is representative of a common inquiry related to penalties for late plan filings.

Highlights of the Discussion

The Further Consolidated Appropriations Act, 2020 included provisions from the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) that materially increased penalties for plan sponsors that fail to file certain reports and notices in a timely manner. The following penalties apply to filings and notices required to be provided after December 31, 2019.

 

Form or Notice Penalty Assessed for Late Filings after 12/31/2019 Pre-SECURE Act Penalties
Failing to timely file Form 5500[1] Up to $250 per day, not to exceed $150,000 per plan year $25 a day, not to exceed $15,000 per plan year
Failing to timely file Form 5310-A Up to $250 per day, not to exceed $150,000 per plan year $25 a day, not $15,000 per plan year
Failing to file Form 8955-SSA Up to a daily penalty of $10 per participant, not to exceed $50,000 A daily penalty of $1 per participant, not to exceed $5,000
Failing to file Form 5330 The lessor of $435 or 100% of the amount of tax due The lesser of $330 or 100% of the amount due
Failing to file Form 990-T The lessor of $435 or 100% of the amount of tax due The lesser of $330 or 100% of the amount due
Failing to provide income tax withholding notices up to $100 for each failure, not to exceed $50,000 for the calendar year $10 for each failure, not to exceed $5,000

 

Conclusion

Beginning in 2020, plan sponsors face much stiffer IRS penalties for not complying with plan reporting requirements as a result of law changes.

[1] The SECURE Act did not change the DOL’s penalty of up to $2,194 per day for a late Form 5500 filing.

© Copyright 2023 Retirement Learning Center, all rights reserved
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Form 5500 and the “80-120 Rule”

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“My client was told by the record-keeper for her plan that it would be filing the plan’s IRS Form 5500 annual report under the “80-120 Rule.” Can you explain what that rule is?

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of the Discussion

Generally, plans with more than 100 participants are required to file the long version of Form 5500, Annual Return/Report of Employee Benefit Plan, as a “large plan.” However, there is an exception referred to as the “80-120 participant rule” that allows certain plans that would otherwise be considered large to continue to file as “small plans” following the streamlined Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, requirements (see 2018 Form 5500 Instructions).

The DOL defines small plans for Form 5500 purposes as plans with fewer than 100 participants at the beginning of the plan year. Small plans file Form 5500-SF and Schedule I Financial Information—Small Plans, (instead of Form 5500 and Schedule H Financial Information), plus certain other applicable schedules. However, small plans, typically, are exempt from the independent audit requirement that applies to large plans.

Under the 80-120 participant rule, if your client filed as a small plan last year and the number of plan participants is fewer than 121 at the beginning of this plan year, your client may continue to follow the Form 5500-SF requirements for this year.

EXAMPLE: For the 2017 plan year, Smally’s Inc., had 93 participants, so the plan administrator filed a Form 5500-SF and applicable schedules as a small plan.  The number of plan participants at the beginning of the 2018 plan year rose to 112.  Under the 80-120 participant rule, Smally’s Inc., may elect to complete the 2018 Form 5500-SF, instead of the long-form Form 5500 and schedules, in accordance with the instructions for a small plans.

Conclusion

The 80-120 participant rule may allow some plans that would otherwise be required to follow the arduous large plan filing requirements for Form 5500 to, instead, continue to file under the streamlined Form 5500-SF process.

 

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401(k) Record Retention Rules

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