Practice Management
One of the most important—and complicated—forms that must be completed and filed is the Form 5500. A recent ASPPA webcast took a look at issues concerning the form and how they can be addressed.
In “Form 5500 Issues and Resolution”, Kizzy M. Gaul, Esq., QKA, QPA, CPC, TGPC, framed issues surrounding the form in a context entailing current circumstances and developments. Following are highlights of the discussion.
Form 5500 Extensions
Gaul reminded attendees that the normal due date for the Form 5500 is the last day of the seventh month after the plan year ends—that means July 31 for a calendar year plan—and for plan termination, seven months after liquidation of plan assets.
The Form 5558, she added, provides for a 2½-month automatic extension, but it must be filed by the normal due date.
Gaul noted that IRS Notice 2020-23 provides a special extension— Form 5500 filings that would otherwise be due on or after April 1 and before July 15, 2020, are now due July 15, 2020. But remember, she said:
- It does not apply to calendar year plans.
- The extension is automatic, no Form 5558 required.
- Filers should select special extension and enter “Notice 2020-23/COVID-19.”
“I think it’s possible we may see some calendar year relief,” Gaul remarked, but she added that “it still would be wise to proceed as it doesn’t happen.”
The Filing and Audit Process
The pandemic has affected myriad aspects of life and functions, and that includes the filing and audit process, Gaul said, and one of the key factors affecting this is the move from on-site to remote work.
Regarding filings and audits concerning 2019, Gaul cited subsequent events market value decline, partial plan terminations, changes in employer contributions or funding considerations and the impact of CARES Act as factors to consider. Developments and concerns surrounding personnel changes related to the pandemic figure prominently for 2020 filings and audits, she indicated. These include:
- Audit considerations with the move from on-site to remote work raise issues for both plan sponsors and service providers. These include whether SOC1 addresses controls for Coronavirus/CARES relief and the move to remote work for service providers.
- Furloughs and layoffs have affected the size of the staff doing the work.
- One could expect additional scrutiny on eligibility with shifting employee status (full-time to furloughed to part-time).
- There is a possibility of fraud or an increase in possibility of fraud.
- There may be increased sampling after reviewing controls during this period.
- CARES loan provisions.
- Remote work may affect contribution timing; the IRS provided relief provided in Notice 2020-01.
“I think we’re looking at more of the same concerns regarding remote working,” said Gaul; she added that to avoid issues next year, as a service provider, one should take stock of what one’s critical structure is.
SECURE Act
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 has affected the Form 5500 as well, Gaul noted. These effects include:
Higher penalties. “These are significant increases that are going to make the delinquent filing program more attractive,” Gaul said.
Consolidated Form 5500 for defined contribution plans. Effective for plan years beginning after Dec. 31, 2019.
Single Form 5500 for MEP and PEP. Effective for plan years beginning after Dec. 31, 2020, they must include:
- a list of participating employers and a good faith estimate of the percentage of total contributions made by each such employer during the plan year and the aggregate account balances attributable to each participating employer, and
- identifying information for the entity designated as the PPP.
The DOL may permit PEPs that cover fewer than 1,000 participants to file a simplified Form 5500, Gaul noted; provided, however, that no more than 100 participants are attributable to any single participating employer.
Changes to 2019 Form 5500 Series
Gaul outlined changes the DOL has made to the Form 5500 and its schedules for 2019 reporting. The instructions to line 2d of the Form 5500 have been clarified regarding how to report the plan sponsor’s business code for multiemployer plans. And the DOL has revised Schedule R, Part III of Schedule H concerning accountant’s opinions and the Schedule SB Mortality Tables.
Common Issues
Gaul outlined common issues concerning the Form 5500. Among those concerns:
- Do not include personally identifiable information (PII) in Form 5500 filing.
- Do not include Form 8955-SSA signature pages. https://www.asppa-net.org/news/dol-stop-including-pii-form-5500filings
- Line 4 is filled out when there are business transactions that involve a plan sponsor name, plan name, EIN or plan number that is different from those entered on the last return.
- If the Form 5500 deadline is imminent and audit is not received, the plan sponsor should file without the audit report to avoid late filing penalties.
- One may receive a 45-day letter if the Form 5500 is filed without an audit report. “That is a hard deadline,” Gaul remarked.
- Administrative considerations include who to put into each plan, additional administrative burdens and work, nondiscrimination impact, and fees and expenses.
- Lost/missing participants: “It’s important that you as a service provider communicate with the plan sponsor what you are doing to address lost and missing participants.”
IRS and DOL Scrutiny
Gaul reminded attendees that the IRS and DOL use Form 5500 data as part of a process to determine which plans to audit or target for other enforcement. She observed that the data also is used to compile information about employee benefit plans, and that scrutiny can be based on enforcement strategies and priorities of the national and regional offices. Gaul also noted that targets for enforcement may share service providers, be of a specific size or type of plan, or have specific responses or inconsistencies in filing data.
Among the factors Gaul said may result in IRS and DOL scrutiny are the following:
- late filing of the Form 5500;
- inconsistencies in data;
- amount reported on Schedule H, Line 1c(15);
- lost/missing participant enforcement;
- a significant drop in participant count on lines 5 and 6 of the Form 5500; and
- amounts greater than $5,000 reported on Schedule H, Part II, Line 2i(5) and no Schedule C.
Employee Benefit Audit Standard (SAS 136)
Gaul told attendees that auto-enrollment and auto-escalation may require more attention and more scrutiny regarding the Employee Benefit Audit Standard (Statement on Auditing Standards (SAS) No. 136).
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