Completion of the Schedule SB, “Single-Employer Defined Benefit Plan Actuarial Information,” of the Form 5500 Series really begins when the actuarial valuation report is prepared, according to David J. Kupstas, MSEA, in the recent webcast “How to Fill Out Your Schedules SB.”
About the Schedule SB and the Valuation Report
Multi-employer plans do not fill out Schedule SB; multi-employer plans have their own comparable schedule, Schedule MB. Before the PPA was enacted, there was just Schedule B for both single-employer and multi-employer plans. Interestingly, for SB purposes, single-employer plans include multiple-employer plans and plans covering several members of a single controlled group. To make matters more interesting, multiple-employer plans are different from multi-employer plans, which are generally union plans.
The valuation report can be designed so the individual preparing the SB can easily pull most of the numbers off the report and create several of the commonly used attachments simply by changing headings on some of the valuation report pages. In fact, after the Pension Protection Act (PPA) was enacted, Kupstas’ firm drew heavily from the SB and its instructions when revamping its valuation report template.
The Webcast
The June 14 presentation was the first in the ASEA 101 webcast series designed to help newer actuaries feel more comfortable and excel in their roles. Kupstas recognized that those completing the Schedules SB could be new or aspiring enrolled actuaries, as well as administrators who have little or no actuarial experience and are relying on easy-to-use valuation reports to complete the SB along with the rest of the 5500.
Although the enrolled actuary doesn’t have to be the one filling out the Schedule SB, Kupstas pointed out that an EA would have to sign off on the SB and thus be involved at some level. The plan administrator cannot complete and certify an SB on its own (unless it happens to be an actuarial firm or employ an EA).
Kupstas walked through all 41 lines of the SB, hitting the highlights of the instructions (which he said were well-written) and adding comments along the way. Following are some highlights of the webcast:
Who doesn’t need an SB? Section 412(e)(3) plans, funded solely by insurance, and plans with a termination date in a prior year do not need an SB—although an SB could be needed if the plan termination is not ultimately completed timely.
Attachments. While the Schedule SB itself is only three pages, the required attachments will surely take up more pages than that. Kupstas provided a list of 25 attachments that could apply. He said he never has anywhere near that many; usually he has between four and eight for his plans.
Valuation date. The valuation date must be the first day of the plan year, except small plans may use a different valuation date, usually the last day of the year. Knowing the valuation date is critical to filling out the SB properly. The SB preparer should not have to think too hard about this, as the valuation report would clearly indicate what date is being used.
Market valuation of assets. The starting point for line 2a of Schedule SB should come from a trust or brokerage statement. Discounted receivable contributions must be added. Current-year contributions plus interest must be subtracted out for end-of-year valuations.
At-risk plans. Different questions are answered different ways if the plan is “at-risk.” A plan cannot be at-risk unless it has more than 500 participants.
Statement by enrolled actuary. There is a box the EA may check if they have not fully reflected any regulation or ruling under the statute. Kupstas has never had reason to check this box before. Some have suggested an audit would be triggered if the box is checked.
Credit balance section. The entries on Part II related to credit balances are as of the beginning of the year. Whenever those numbers are used in other parts of the SB when the valuation is EOY, the credit balance amounts may need to be adjusted for a year’s interest at the effective rate. Also, line 8 may be different from last year’s line 35 if a credit balance was applied toward a quarterly contribution installment after that installment was due. Finally, whereas usually recent excess contributions are accumulated at the plan’s effective rate, they will be accumulated at the actual rate of return if the excess contribution arose due to the use of credit balances.
Percentages. Some interest rates are rounded either up or down, but FTAPs and AFTAPs are always rounded down to the next lowest .01%. If a ratio is 0/0, enter 80% or 100% as applicable. Enter 999.99% if you have a ratio higher than that. (Kupstas actually has a couple of plans with such high ratios.)
Assumptions and methods. The top of page three has questions relating to actuarial assumptions and funding methods. Attachments will definitely be needed here. Kupstas went over what constitutes an assumption and what constitutes a funding method. In particular, the choice of lookback month for minimum contribution segment interest rates is part of the plan’s funding method, not an assumption, even though the lookback month relates to an assumption. For the question about whether any assumption changes have been made, do not consider changes to assumptions prescribed by the IRS.
Amortization bases. If there is a funding shortfall, that shortfall must be amortized over 15 years. If a plan cannot meet the minimum funding requirement, it may apply for a funding waiver. If approved, the waived amount would be contributed over five years starting next year. All shortfall bases, including the current year’s, are included in the minimum contribution. The current-year waiver base is not included in the minimum contribution since amortization on it starts the following year. If there is no shortfall, all bases of both kinds are extinguished.
Early adoption of ARPA amortizations. Before the American Rescue Plan Act was enacted, shortfalls were amortized over a seven-year period. The amortization period is 15 years starting in 2022. However, a plan could start 15-year amortization as early as 2019. If it did, a box on line 41 would be checked.
Kupstas closed by describing the difference between an “error” and a “warning” in 5500 preparation software, with “error” being more serious. He also urged SB preparers not to forget any required attachments. His firm twice forgot to attach the scanned signed SB. As a result, his clients received letters threatening excessive penalties which took great effort to have waived.
Webcast Available on Demand
The ASEA Webcast, “How to Fill Out Your Schedules SB,” is available on demand. Click here:
https://www.asppa.org/asea-webcast-how-fill-out-your-schedules-sb
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