The Nuts and Bolts of 5500 Series Preparation. Kristina Kananen APA QPA QKA DATAIR Employee Benefit Systems, Inc.

Transcription

1 The Nuts and Bolts of 5500 Series Preparation Kristina Kananen APA QPA QKA DATAIR Employee Benefit Systems, Inc.

2 Kristina Kananen APA QPA QKA DATAIR Employee Benefit Systems, Inc. Kristina draws on her 40 years of qualified plan experience to serve as a liaison between government agencies, DATAIR s programmers and clients of DATAIR Employee Benefit Systems, Inc. Her primary responsibility is for DATAIR s Pension Reporter system which includes 5500 Series, PBGC forms, 1099-Rs and 5300 Series forms. In 2008, Kristina was the recipient of NIPA s Volunteer of the Year. She currently serves on the NAFE Planning Committee, the NIPA Designation Committee, the Great Lakes NIPA Study Group, and ASPPA s GAC Reporting and Disclosure Committee. 2

3 Our Goal for Today Determining the contents of the filing Gathering the data for the filing Resolving conflicts between client information and data evidence Expanding data gathering with an eye to the future 3

4 What You Need to Know When You Start What kind of plan? What kind of filing? Who is the Plan Sponsor? How many participants? What kind of plan document and what provisions? Where are the assets invested? Will an audit be done? 4

5 What Kind of Plan? Defined Contribution Money Purchase Subject to Minimum Funding Profit Sharing/401(k) 403(b) Government Plan Defined Benefit Who is the Actuary Cash Balance Combo Plan 5

6 What Kind of Filer? MultiEmployer 6 More than one employer is required to contribute Plan is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer Participating employers do not file individually for these plans Can only file Form 5500 and schedules Single Employer Maintained by one employer or one employee organization Members of a Controlled Group of Corporation, Businesses under Common Control or Affiliated Service Group file as a Single Employer Plan If contributions of one member are available to pay benefits of ONLY that member s employee File Separately

7 What Kind of Filer? Multiple-Employer Plan 7 Maintained by more than one unrelated employer If it is a Valid MEP, Participating employers do not file individually Must include a listing of each participating employer with their EINs and percent of contributions Direct Filing Entity Master Trust Investment Account (MTIA) Will be filed by the plan, all other DFEs are filed by custodians of the investments, such as Common/Collective Trust (CCT) Pooled Separate Account (PSA) Investment Entity ( IE) Group Insurance Arrangement (GIA)

8 What Kind of Filer? One-Participant Only owner(s) and spouse(s) are participating Choosing to file electronically instead of filing Form 5500-EZ Foreign Plan Maintained outside the US primarily for nonresident aliens, if maintained by a domestic employer, or Maintained by a foreign employer with income derived from sources within the US (including foreign subsidiaries of domestic employers) if plan contributions are deducted on its US income tax return Did the Plan Name change? 8

9 What Kind of Filer? Type of Return/Report The first return/report 9 Form 5500-EZ is not considered an annual return/report for this purpose Amended Return/Report Filing Completed and received Filing_Received, Filing_Error or Filing_Stopped filing status. Filing_Stopped issued for: Sponsor and Administrator signature is missing (I-104, I-104SF) Line 8a and 8b are blank on 5500 (J-509) OR Lines 9a and 9b are blank Plan Administrator UserID and PIN are missing (P-227 and P- 227SF) Number of BOY participants is greater than 120 (P-230SF) Line 6a is No (X-092SF) Line 6b is No (X-094SF)

10 What Kind of Filer? Type of Return/Report The final Return/Report Must have zeroes for: Total participants at EOY Active Participants at EOY Total Assets at EOY Total Liabilities at EOY Net Assets at EOY Must indicate that there was a resolution to terminate the plan and indicate amount reverting to the Sponsor Must indicate that all assets were distributed to participants/beneficiaries 10

11 What Kind of Filer? Type of Return/Report A short Plan Year return/report Must be less than 12 months Must begin on the day after the last day of the prior year Collectively Bargained Plan If the filing is for a MultiEmployer plan, this box should be checked. 11

12 What Kind of Filing? Filing Under Form 5558 For Additional 2 ½ months after the 7 month due date Automatic Extension For additional 1 ½ months after the 7 month due date applies to Company tax return as well. No further extension is available DFVC Program No specific due date, except for as soon as possible Special Extension Disaster Relief for filers Listed at 12

13 Who is the Plan Sponsor? Was there a merger, acquisition or divesture of a portion of the Plan Sponsor? Is the Plan Sponsor the same as was reported on the prior year Form 5500 Series? Are the plan records held in the same place as the mailing address? 13

14 How Many Participants? Determines which forms/schedules are filed If over 100, can look to Rule Retirement plan that filed as a large plan will continue to file as a large plan until participant counts drops below 100. They could wait until the participant count is less than 80, but most large filers want to get out from under the audit requirement as soon as possible Retirement plan that filed as a small plan in prior year can wait until the participant count exceeds 120 participants before having to file as a large plan and be audited Note: rule A plan with more than 100, but less than 121, can file as a small plan as long as it filed as a small plan for the prior year 14

15 How Many Participants Choices: Over 100 (or 120) Files 5500 and Schedule H Under 101 (or 121) Choices Form 5500 and Schedule I Can still waive the audit requirement Form 5500-SF Must meet requirements to file More than 80% of all retirement plan filings are completed on Form 5500-SF DOL suspects not all are eligible to be 5500-SF filers 15

16 How many participants? Determine the Active Participant Count Currently Employed and Earning or Retaining Credited Service Eligible to make deferrals under 401(k)/403(b) Includes nonvested participants who are earning or retaining credited service under the plan Does NOT include nonvested former employees who have incurred a break in service Does NOT include participants who have received a Cash-Out distribution or a deemed distribution of their nonforfeitable accrued benefit 16

17 How Many Participants? Other Participants included in the Total Participant Counts Retired/Separated participants who are receiving benefits from the plan Retired/Separated participants who are entitled to future benefits from the Plan Deceased individuals who had one or more beneficiaries who are receiving benefits from the plan Currently if there are fewer than 100 TOTAL participants, the plan is considered small and audit is not required May be eligible to file Form 5500-SF 17

18 What Kind of Plan Document and Provisions? Characteristic Codes Defined Benefit Plans MUST have a 1x code Defined Contribution Plans MUST have a 2x code Combination Plans will have both 1x and 2x codes 3x codes are applicable to any plan Make sure you have up to date codes for your plan Plan Funding and Benefit Arrangements Note: A qualified retirement plan should never check General Assets of the Sponsor If you mark Insurance or 412(e)(3), a Schedule A will be part of your filing 18

19 Where are the Assets Invested? Who is holding the investments Banks Common Collective Trusts Master Investment Trust Accounts Insurance Companies Insurance Policies and Annuities Pooled Separate Accounts Registered Investment Company Mutual Funds Broker-Dealer Plan Trustee Usually only unique investments that are Hard to Value 19

20 Where are the Assets Invested? Readily Determinable Fair Value Investments listed on an exchange Stocks Bonds Mutual Funds However the instructions for Form 5500-SF states: Current value means fair market value where available. Otherwise, it means the fair value as determined in good faith under the terms of the plan by a trustee or named fiduciary, assuming an orderly liquidation at the time of the determination. 20

21 Where are the Assets Invested? Hard to Value Investments 21 Investments are not readily marketable Values are not listed on national exchanges or over-the-counter markets and are quoted market prices are not available from financial sources Includes Hedge Funds Private Equity Funds Real Estate Funds Venture Capital Funds Commodity Funds Nonmarketable derivatives Real property Collectibles

22 Where are the Assets Invested? Valuation of Plan Investments is the responsibility of the Plan Administrator A hard to value investment may not be obvious if there are funds that invest in hard to value investments. The kinds of investments determine the eligibility to file Form 5500-SF 22

23 Where are the Assets Invested? Plan Asset Reporting Beginning of the year total assets, total liabilities and net assets must be exactly as reported the prior year return end of the year amounts Can use one of 3 methods for reporting plan assets Cash Basis Only amounts on financial statements at the end of the year Modified Cash Basis Plan year contributions deposited after the end of the year and distributions adjust the statement amounts Accrual Basis Receivable contributions and investment income as well as payable distributions and expenses at year end adjust the statement amounts 23

24 Where are the Assets Invested? Deemed distribution of participant loans Loan principal and interest are not included in EOY assets IF Loan is treated as a directed investment of the participant who took the loan, AND Participant is not continuing loan payments Loan principal and interest will be included in the EOY assets if BOTH of the above conditions are not met Loans that were deemed distribu5tions are not added back to the plan assets unless the participant begins making loan payments again, then the amount of deemed distributions is reduced by the previously reported deemed distribution 24

25 Where are the Assets Invested? Impact on the Ability to File the Form 5500-SF Plan can only invest in Eligible Assets Eligible Assets are defined in 29 CFR (c)(2)(ii)(C), which ties the definition to 29 CFR for waiving the plan audit Unlike the audit waiver, a Form 5500-SF must have 95% of all plan assets invested in qualifying plan assets Definition is very close to the Qualifying Plan Asset definition EXCEPT no Plan Sponsor Stock can be held Must meet all conditions to waive the plan audit 25

26 Where are the Assets Invested? Steps required to waive the plan audit 26 Determine the Qualifying Plan Assets Qualifying Employer Securities under ERISA 407(d)(5) Remember Form 5500-SF filers can not hold Employer Securities Loans meeting the requirements of ERISA 408(b)(1) Any assets held by a regulated financial institution Bank or similar financial institution Insurance Company qualified to do business under the laws of the state Broker-Dealer under Securities Exchange Act of 1934 Any organization authorized to act as a Trustee for IRAs under IRC 408 Shares issued by an investment company registered under and The Investment Company Act of 1940 Investment and Annuity Contracts issued by an insurance company qualified to do business under the laws of the state Any assets over which the participant/beneficiary has the opportunity to exercise control and for which the participant/beneficiary receives a financial institution statement at least annually

27 Where are the Assets Invested? Steps to Waive the Audit, Cont d Determine percentage of qualifying plan assets Increase the ERISA 412 bond, if qualifying plan assets represent less than 95% of total assets Calculated in the same manner as the amount of the bond pursuant to 29 CFR , and Amount of the bond needs to be the greater of 10% of the total plan assets OR the value of the NON-qualifying plan assets NOTE: The additional bonding provision for waiving the audit does NOT apply to the eligibility to file Form 5500-SF 27

28 Where are the Assets Invested? Steps to Waive the Audit, Cont d Modify SAR/AFN per 29 CFR to include: Statement that the plan has met the audit waiver requirements Listing of Financial Institution holding the Qualifying Plan Assets with the amount held at the plan year end and the type of financial institution Paragraph that includes Qualifying Employer Securities, individual participant accounts directed by participants/beneficiaries and amount of the bond covering non-qualifying plan assets and the name of the approved surety company NOTE: Form 5500-SF filers will not have the increased bond or the Qualifying Employer Securities Statement that participants/beneficiaries can receive a copy of the financial institution year end statements 28

29 Where are the Assets Invested? Steps to waive the Audit, Cont d Modify SAR/AFN per 29 CFR , Cont d Information on how to contact EBSA if copies of the financial institution and/or fidelity bond are not provided Where to find general information about the audit waiver conditions ( under Frequently Asked Questions 29

30 Where are the Assets Invested? Eligibility to file Form 5500-SF Must be a small plan (under 100 participants or under 121 participants if 80/120 rule is followed) Must waive the audit requirement have 95% of the plan assets invested in Qualifying Plan Assets and modify the SAR 100% of all assets must be invested in certain secure investments with a readily determinable fair value Holds no employer securities Not a Multiemployer plan Not required to file Form M-1 30

31 Where are the Assets Invested? Modernization and Plan Assets The proposal includes much more detail on the investments in the plan Schedule of Assets Held attachment will include Party in Interest Name of Issuer, borrower, lessor or similar party Whether the asset is Hard to Value CUSIP, CIK, LEI, NAIC company code Or other registration number Cost The Schedule H line the asset is reported on Description 31

32 Where are the Assets Invested? Modernization and Plan Assets Master Trusts will be reported on a separate attachment Must indicate if it is hard to value PSAs and CCTs will be reported on a separate attachment Must indicate if the asset is hard to value Also need to indicate if the PSA or CCT filed as a DFE Schedule I will be eliminated If not eligible to file 5500-SF, will have to include more asset information in the filing Small plans will be able to waive the audit 32

33 Where are the Assets Invested? Responsibility of the Plan Administrator May not be obvious that the investment is Hard to Value Especially true if a fund invests in funds which invest in hard to value investments 33

34 Where are the Assets Invested? Small Plan Audit Waiver DOL Reg To waive: 34 95% of assets must constitute qualifying plan assets OR the ERISA section 412 bond is increased to the value of the nonqualifying plan assets Applies to Waiver ONLY and not Form 5500-SF filer eligibility The Summary Annual Report must include: Listing of Financial institutions holding qualifying plan assets Unless plan is 100% participant directed and benefit statements are produced by the Financial Institutions Name of the Surety Company if bond increased to more than 5% of total assets A notice that participants can receive copies of the financial institution reports and the surety bond A notice that participants should contact the EBSA if they are unable to obtain the copies

35 Where are the Assets Invested? Small Plan Audit Waiver Qualifying Employer securities ERISA 407(d)(5) Loans under ERISA 401(b)(1) Any assets held by: 35 Bank or similar financial institution ( b-4(c)) Insurance Company qualified to do business under he laws of a state Broker-dealer registered un Securities Exchange Act of 1934 Any other organization authorized to act as a trustee for individual retirement accounts under IRC 408 Shares issued by a registered investment company Investment and annuity contracts issued by an insurance company

36 Where are the Assets Invested? Failure to Waive the Audit Form 5500 and Schedule I must be filed Audit report must be attached to the filing. NOTE: Large Plan Filers must have an audit. 36

37 Will an Audit be Done? Provides Auditor s Opinion on Plan s Financial Statements 37 Unqualified, Qualified or Adverse Opinions Auditor Audits Plan Investments Tests for existence, valuation, completeness, ownership and proper disclosures Requires addressing hard to value asset issues for financial reporting Plan Sponsor must assert proper values in the plan s financial statements. Auditor needs to address hard to value asset issues Audit scope includes testing of participant records, contributions, benefit payments, internal controls over financial reporting and overall presentation of financial statements

38 Will an Audit Be Done? In a Full Scope Audit, Auditor obtains reasonable, but not absolute, assurance that the financial statements are not materially misstated due to fraud. Not all fraud will be detected in an audit. A well-concealed or insignificant fraud may avoid detection. Audit identifies any internal control, compliance or operational issues 38

39 Will an Audit be Done? Limited Scope Audits Does not include an opinion on plan s financial statements Plan sponsor instructs the auditor not to test investments, including the value of the investments and any income thereon that are covered by the certification (including hard to value assets) Plan sponsor must assert proper values in the plan s financial statements. Auditor is instructed not to audit hard to value assets if they are properly covered by the certification 39

40 Where are the Assets Invested? Limited Scope Audits, Cont d Includes testing of participant records, contributions, benefit payments, internal controls over financial reporting, and overall presentation of financial statements Except internal controls for certified investments and generally can not evaluate whether the plan s financial statements overall are presented in accordance with GAAP due to the significance of the certified investments reported but not audited Fraud is not tested in certified investments Internal control, compliance or operational issues related to certified investments are not tested by the auditor 40

41 Handling Areas of Disagreement with Plan Sponsor/Administrator Areas Participant Count Compliance Questions Asset Valuations 41

42 IRS Compliance Questions (Skipped for 2016) Nondiscrimination requirements for Employee Deferrals Coverage requirements In-service distributions to participants who attained age 62 RMDs to 5% owners 42

43 The Plan Administrator Is Counting on You Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including, if applicable a Schedule SB or Schedule MB completed and signed by an enrolled actuary, as well as the electronic version of this return/report, and to the best of my knowledge and belief, it is true, correct and complete. 43

44 44 QUESTIONS?

45 THANK YOU FOR ATTENDING! 45