FOR LIVE PROGRAM ONLY Mastering Form 5500 Schedule H: Avoiding Audit Triggers Financial Information Reporting Requirements, Identifying Valuation Challenges and Expanded Compliance Questions THURSDAY, MAY 18, 2017, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours. To earn credit you must: Participate in the program on your own computer connection (no sharing) if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover. Listen on-line via your computer speakers. Respond to five prompts during the program plus a single verification code. You will have to write down only the final verification code on the attestation form, which will be emailed to registered attendees. To earn full credit, you must remain connected for the entire program. WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations: -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Live Program: -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
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Mastering Form 5500 Schedule H May 18, 2017 Sharjeel Ahsan, CPA, MBA, Audit Senior Manager McConnell & Jones, Houston sahsan@mjlm.com John C. Hughes, Esq. The ERISA Law Group, Boise, Idaho john@erisalawgroup.com Stacey I. Snyder, CPA, QKA Belfint Lyons Shuman, Wilmington, Del. ssnyder@belfint.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Mastering Form 5500 Schedule H: Avoiding Audit Triggers Key Schedules to Form 5500 May 18, 2017 Stacey I. Snyder, CPA, QKA, TGPC SSnyder@belfint.com Copyright 2016 Belfint, Lyons & Shuman, P.A.
Key Schedules to Form 5500 Schedule A Insurance Information Schedule C Service Provider Information Schedule D Direct Filing Entity / Participating Plan Information Schedule G Financial Transaction Schedule Schedule H Financial Information Schedule I Financial Information Small Plan Schedule R Retirement Plan Information Schedule MB Multiemployer DB Plan and Certain Money Purchase Plan Actuarial Information Schedule SB Single-Employer Defined Benefit Plan Actuarial Information 6 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule A Insurance Information Reports information about the plan s insurance contracts/policies, including premiums and commissions paid Required if benefits are funded or provided by an insurance company, insurance services, or other similar organization Not required for Form 5500-EZ or For 5500-SF Filers o Form 5500-EZ filers are required to keep all information that would have appears on the Schedule When lines 9a(1), 9a(2), 9b(1), or 9b(2) of the Form 5500 is checked, Schedule A must be filed Not required with respect to insurance or annuity arrangements that are held by master trust investment accounts (MTIAs) or 103-12 investment entities 7 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule C Service Provider Information Reports amounts paid from plan assets, either directly or indirectly Part I - Lists fees paid by the plan to a service provider of $5,000 or more in direct or indirect fees Part II - List of service providers that fail or refuse to provide the required information to a plan Part III - List of any accountant or enrolled actuarial firm no longer providing services Not applicable to small plan filers (Filed only if Schedule H is required) 8 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule D Direct Filing Entity / Participating Plan Information Reports information regarding a plan s investments with certain financial institutions that hold certain types of investments Must be filed when a plan invests in Common/Collective Trusts (CCTs), Pooled Separate Accounts (PSAs), Master Trust Investment Accounts (MTIAs), 103-12 Investment Entities, or Guaranteed Income Accounts (GIAs) 9 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule G Financial Transaction Schedules Reports information regarding nonexempt transactions Required when either 4b, 4c, and/or 4d on Schedule H are answered Yes Reports: o Part I - Schedule of Loans or Fixed Income Obligations in Default or Classified as Uncollectible o Part II - Schedule of Leases in Default or Classified as Uncollectible o Part III - Nonexempt Transactions 10 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule H Financial Information Completed by large plan filers and DFEs o 80-120 Rule Part I Asset and Liability Statement Part II Income and Expense Statement Part III Accountant s Opinion o Auditors report and financial statements must be attached to filing Part IV Compliance Questions 11 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule H Financial Information - Continued Part IV Compliance Questions - Continued o If questions 4b, 4c, or 4d are answered "Yes", Schedule G must be completed and filed o If questions 4a, 4i, or 4j are answered "Yes", supplemental schedules must be prepared and attached Schedule of Delinquent Participant Contributions (4a) Schedule of Assets (Held at End of Year) (4i) Schedule of Assets (Acquired and Disposed of Within Year) (4i) Schedule of Reportable Transactions (4j) 12 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule I Financial Information Small Plan Completed by small plan filers o 80-120 Rule Part I Small Plan Financial Information o Plan Assets and Liabilities o Income, Expenses, and Transfers for this Plan Year Part II Compliance Questions o Schedule G is not required o If question 4a is answered "Yes", Schedule of Delinquent Participant Contributions must be attached 13 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule MB Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information Reports actuarial information for defined benefit plans sponsored by Multiemployer Organizations Only money purchase and target benefit plans that have been granted a waiver of the minimum funding standard are required to file 14 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule SB Single-Employer Defined Benefit Plan Actuarial Information Reports actuarial information for defined benefit plans sponsored by single and multiple employer defined benefit plans subject to minimum funding requirements 15 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule MB / SB Defined Benefit Plan Actuarial Information Captures identifying information about the plan and plan sponsor, the type of plan, the number of participants, basic information about plan assets, and funding target information Identifies the minimum funding requirements for the year Must be signed by the plan's enrolled actuary o Digital signature is not permitted Contributions on the Schedule H or Schedule I should reflect amounts reported on Schedule MB/Schedule SB When line 8b(2) of Schedule MB or line 26 of Schedule SB is answered "Yes", the Schedule of Active Participant Data must be filed. 16 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Schedule R Retirement Plan Information Reports the following information: o o o o o o o Part I - Certain plan distributions during the year Part II - Funding of plans subject to the minimum funding requirements Part III - Plan amendments that increase or decrease the value of benefits in a defined benefit plan Part IV - Specific issues related to Employee Stock Ownership Plans (ESOPs) Part V - Funding status of multiemployer defined benefit pension plans Part VI - Other issues of defined benefit pension plans Part VII - OPTIONAL IRS compliance questions Required for all pension benefit plans, except those that use individual retirement accounts or annuities as the sole funding vehicle 17 Copyright 2016 Belfint, Lyons & Shuman, P.A.
Mastering Form 5500 Schedule H: Avoiding Audit Triggers Thursday, May 18, 2017 Sharjeel Ahsan, CPA, MBA Audit Senior Manager McConnell & Jones LLP
FORM 5500 SCHEDULE H This schedule is required to be filed for a large retirement plan (DC or DB plan) and large funded welfare benefit plan (i.e. with more than 100 participants as of the beginning of the plan year) For small plans (typically less than 100 participants as of the beginning of the plan year), Schedule I is to be attached. 20
FORM 5500 SCHEDULE H Part I Asset and Liability Statement Assets Liabilities Current value of plan assets at the beginning and end of the plan year. Combine the value of plan assets held in more than one trust. Do not enter the value of that portion of an insurance contract which guarantees, during this plan year, to pay a specific dollar benefit at a future date. Round off amounts to the nearest dollar. Reporting DFEs: filing 5500 vs. not filing 5500s Current value of plan assets and liabilities at the beginning and end of the plan year. Benefit claims payable, Operating payables, Acquisition indebtedness, Other 21
FORM 5500 SCHEDULE H Direct Filing Entity disclosure items (often missed): 22
FORM 5500 SCHEDULE H Part II Income and Expense Statement Plan income, expenses, and changes in net assets for the year. Include all income and expenses of the plan, including any trust(s) or separately maintained fund(s). Round off amounts to nearest dollar. Contributions: Employer, Participant, Others (including rollovers) Expenses: Payments to participants, insurance carriers Corrective distributions and deemed distributions of participant loans Interest and administrative expenses Deemed distributions: Line 2g shows amounts of participant loans that were delinquent and deemed as distributions (1099s were issued) ASO Contracts Stop-loss insurance premium expense Transfers in Transfers out 23
FORM 5500 SCHEDULE H Form 5500 reconciliation ERISA requires an explanation of differences between the information contained in the audited financial statement and the Schedule H of Form 5500 It is required to add a reconciliation in the notes to the financial statements, for any differences in the amounts reported in the financial statements to amounts reported in the Form 5500 24
FORM 5500 SCHEDULE H Form 5500 reconciliation common items Benefits payable Participant loans/deemed distributions Health and welfare claims payable Health and welfare IBNR 25
FORM 5500 SCHEDULE H Part III Accountant s Opinion Independent Qualified Public Accountant (IQPA) Report Required for large benefit plans that file Schedule H Exceptions Plans with fewer than 100 participant at the beginning of the plan year Employee welfare plans that are unfunded, full-insured, or a combination of unfunded and insured Short-year filing for a new plan Schedule H filed for CCT, PSA, or MTIA 26
FORM 5500 SCHEDULE H Part III Accountant s Opinion Ensure that information reported in this part is consistent with the attached accountant s opinion Auditor s name and EIN must be verified and reported correctly 27
FORM 5500 SCHEDULE H Compliance Questions (Part IV) Line 4(a) timing of participant 401(k) contributions and loan repayments Line 4(d) nonexempt transactions with any party-in-interest (Schedule G) Line 4(e) Fidelity Bond (Fidelity Bond vs. Fiduciary Coverage) Line 4(i) and 4(j) Schedules Common Attachments to Schedule H (4a) Schedule of Delinquent Participant Contributions (4i) Schedule of Assets Held at the End of the Year (4j) Schedule of Reportable Transactions 28
FORM 5500 SCHEDULE H Part IV Compliance Questions New Item 5c regarding defined benefit plans covered under the PBGC insurance program Disclosure of key items by plan sponsors Failure to transmit timely contributions to the plan Nonexempt transactions with any party-in-interest Losses due to fraud or dishonesty Failure to provide benefits due under the plan Blackout periods for individual account plans Omit Lines 4o and 6a-6d (Part V Trust Information) for the 2016 plan year 29
FORM 5500 SCHEDULE H Potential Audit Triggers: Large amount on line 1c(15) Other assets Large amount on line 2c Other income 3a(3) is checked but 3b is checked No 3c was left blank or incorrect EIN Qualified or Adverse opinion 30
FORM 5500 SCHEDULE H Potential Audit Triggers: 4e was left blank (fidelity bond) 4f Did the plan have a loss that was caused by fraud or dishonesty? 4l is checked Yes : Has the plan failed to provide any benefit when due under the plan 5c was checked No for a defined benefit plan 31
John C. Hughes, Esq. MAY 18, 2019
JOHN C. HUGHES, ESQ. THE ERISA LAW GROUP, P.A. 205 N. 10th Street, Suite 300 Boise, Idaho 83702 208.342.5522 866.ERISALAW john@erisalawgroup.com www.erisalawgroup.com John is a shareholder with The ERISA Law Group, P.A. focused in the area of ERISA/employee benefits. His practice is He typically represents companies relative to issues involving all types of employee benefit plans including 401(k), profit sharing, pension/defined benefit, 457, 403(b), nonqualified deferred compensation/409a, employee stock ownership ( ESOP ), governmental, 125/cafeteria, and health and welfare plans. John counsels clients on a variety of plan related issues including fiduciary responsibilities, plan operations and administrative issues, plan corrections, plan design, mergers and acquisitions, litigation, and plan qualification. John is the Coeditor-In-Chief of a long standing nationally circulated monthly newsletter entitled the 401(k) Advisor. He is a former President and Board Member of the Boise Chapter of the Western Pension & Benefits Council. 34
Required to be filed annually by the Employee Retirement Income Security Act of 1974, as amended ( ERISA ) IRS form submitted to IRS and the U.S. Department of Labor Reports on plan activity (welfare and pension plans) Significant penalties if not filed or late Used to gather information about plans Various sections, schedules, and attachments 35
Filed electronically and reviewed, at least to some extent, electronically Used by DOL and IRS as an enforcement tool It is a way to take a closer look at plan operations and identify which plans might require follow up/investigation Avoid unnecessarily raising red flags in completing Carefully review for accuracy and compliance with instructions prior to submission 36
Some items that might have a tendency to trigger inquiry include: Incorrect/varying information (e.g., plan names, numbers, and sponsor names) Nonresponses (e.g., leaving parts of Line 6 blank) Responses coded or labelled as other. Wrong Line 8 codes Reporting no fidelity bond in place (or suspect amount of the bond) 37
Completion of Schedule C incorrectly Improper description/reporting of late deposits Take away Carefully complete in accordance with the instructions and review. It is the employer s filing, not the recordkeeper/tpa s 38
New questions were added by IRS to 2015 Form 5500 Aimed at compliance issues (i.e., legal compliance) Hard to say how particular issues were picked Importantly, IRS then came out and advised they should not be answered Stated in the instructions Eliminated from 2017 form supposedly 39
Answering could present problems Not following instructions (indicative of other problems or poor plan administration) Providing information that might raise a question 40
Page 1 Preparer information Schedule H (and I) Line 4o Defined Benefit Plan or Money Purchase Pension Plan Only: Were any distributions made during the plan year to an employee who attained age 62 and had not separated from service Additional Schedule H questions in 2015 version Some Schedule H (and I) compliance questions already exist Schedule H Line 6 Name of trust, trustee (or custodian), trust EIN, and trustee phone number 41
Schedule R Part VII (Lines 20 22) Is the plan a 401(k) plan? Interesting given Line 8 code. How did the plan satisfy nondiscrimination testing under Code Section 401(k)(3) for the year? Safe harbor to ADP testing How was Code Section 410(b) coverage testing performed? Ratio percentage test or average benefit test Did the plan satisfy Code Section 410(b) and 401(a)(4) using permissive aggregation rules? 42
Schedule R Additions (continued) If the plan is a preapproved plan (i.e., prototype or volume submitter), the date of the applicable opinion or advisory letter (and the serial number) If the plan is individually designed, the date of the most recent determination letter 2015 contained more. Plan timely amended for required legal updates? Good to know the answer to these questions (mini audit, identify problems, ready to answer in future or fix) What does the future hold for the new questions? 43
Schedule H Line 4a Late deposits? Line 4d Nonexempt transactions with a party in interest? Line 4e Plan covered by fidelity bond? Line 4l Fail to provide any benefits when due? Line 4m and n Blackout period? Notice provided? Line 5a Resolution to terminate? Line 5b Transfers out of the plan? 44
Bigger picture than added compliance questions Proposed overhaul by DOL, PBGC and IRS July 2016 About 200 pages in Federal Register (July 21, 2016) 45
Policies and Rationale Supporting the Proposed Revisions: Notes high number of welfare and retirement plans Approximately 4.6M and 681,000, respectively Covering 143 private sector workers, retirees, and dependents. Estimated assets of $8.7 trillion. Form 5500 is primary source of information regarding these plans operations and funding Compliance tool for federal agencies and private sector. 46
Target effective date of January 1, 2019. Statement from DOL Fact Sheet: The proposed form revisions and the DOL s implementing regulations together are intended to address changes in applicable law, the employee benefit plan and financial market sectors, as well as corresponding shifts in the data needed for the Agencies enforcement priorities, policy analysis, rulemaking, compliance assistance, and educational activities. The proposed changes would also improve publicly available information about employee benefit plans and reinforce for plan fiduciaries the important duties they have under ERISA to operate plans prudently and monitor service providers. 47
Major Goals Improve and modernize financial reporting Changes in plans and investment practices. Alternative investments, hard to value assets, etc. Obtain more information regarding health plans Includes requiring fully insured plans (large and small) and small self-funded plans to complete and file Form 5500 Improve data mining capabilities Better coordinate Schedule C reporting with ERISA Section 408(b)(2) disclosure requirements 48
Increase compliance focus New questions regarding operations, provider relationships, and finances aimed at protecting participants and educating fiduciaries Change requirements related to limited scope audits (imposing more conditions) 49
What is in store for the proposed changes? Public comments. Change in regulatory environment. Next steps? 50
Reviewed by people, but also by computer Must be filed electronically Filings are publicly available online IRS and DOL use in part to identify plans to investigate Wrong or incomplete filing could unnecessarily trigger inquiry 51
This presentation is intended to provide general information only and does not provide legal, tax, or investment advice or create an attorney-client relationship. This material may be considered attorney advertising under rules of certain jurisdictions. 52