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As plan sponsors gear up to prepare the Annual Return/Report of Employee Benefit Plan, Form 5500, for retirement and welfare benefit plans with a December 31, 2014 year end1, there are some significant changes to keep in mind.

Form 8955-SSA Mandatory Electronic Filing

Electronic filing has, to date, been optional. However, sponsors required to file a W-2 or 1099 electronically for a year that includes the first day of the plan year, are now required to file the 2014 filing of Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, electronically as well.

It is important to note that, should the sponsor fail to comply with the mandatory electronic filing requirement, the form is considered not filed, even if a paper return is submitted. Plan sponsors who miss this step and thus fail to timely file an annual Form 8955-SSA could face IRS-assessed penalties of $1 for each reportable participant for each day the failure to file the Form 8955-SSA continues, up to a maximum of $5,000 per participant. All plan sponsors entering the DOL’s Delinquent Filers Voluntary Compliance program for late Form 5500s can, within 30 days of entering DFVC, file a paper copy of the Form 8955-SSA with the IRS to avoid the IRS penalties. See IRS Notice 2014-35. The DOL does not have any penalties associated with Form 8955-SSA.

Form 5500 – Signature and Date, Active Participants Information, and Multiple-Employer Plan Information

There have been updates made to Form 5500 instructions for “Signature and Date,” which now caution the filer to check the filing status in EFAST2. EFAST2 sends a notification (usually within 20 minutes of submission) that the return/report is ready to be processed. If the filer is not notified that the submission was successfully received and is ready to be processed, the problem will need to be corrected to avoid being deemed a “non-filer” subject to penalties from the Department of Labor (DOL), IRS, and/or Pension Benefit Guaranty Corporation (PBGC).

If the filer receives notification that shows the status as “Processing Stopped” or “Unprocessable,” it is possible that the submission was not sent with a valid electronic signature. It is therefore critical to look closely at the Filing Status and the specific error messages applicable to the transmitted filing to help determine the specific problem to be corrected.

A new question that appears on Form 5500, Line 6a(1), asks what is the “total number of active participants at the beginning of the plan year?” While this question may seem very similar to Line 5 (“total number of participants at the beginning of the plan year”), these questions are actually asking for two different counts. Line 5 also includes participants that are retired or separated from service still receiving benefits under the plan whereas Line 6a(1) excludes those participants. For retirement plans, the difference between the count for Line 5 and Line 6a(1) is the former employees entitled to future benefits, while for health care plans the difference would be retirees receiving benefits or other former employees who have elected COBRA.

Additionally, the check box for “Multiple-Employer Plans”2 in Part I of the Form 5500 now indicates that multiple-employer pension plans and multiple-employer welfare plans filing the Form 5500 must include an attachment that:

  • Lists each participating employer in the plan during the plan year, identified by name and employer identification number (EIN)
  • Includes a good-faith estimate of each employer’s percentage of the total contributions (including employer and participant contributions) made by all participating employers during the year

The sponsor will need to complete as many entries as needed to report all applicable employers. Multiple-employer welfare plans that are not required to file financial statements with their annual report are required to include only a list of participating employers with the corresponding EIN and Plan Numbers in the “Multiple-Employer Plan Participating Employer Information” attachment submitted with their filing.

Form 5500 – Schedule H, Schedule MB and Schedule SB

According to the expanded instructions for Schedule H Line 1c(13), a qualifying registered investment company must be registered under the Investment Company Act of 1940, including mutual funds (legally known as open-end companies), closed-end funds (legally known as closed-end companies), and UITs (legally known as unit investment trusts).

Similarly, a new Line 4f has been added to Schedule MB, which requires the filer to provide information on plans in critical status regarding the year the plan is projected to emerge from critical status, or, if the rehabilitation plan is based on forestalling possible insolvency, the year in which plan insolvency is expected.

For each type of participant (active, retired, or terminated vested), Line 3 of Schedule SB now states that the funding targets (vested and total) need to be reported separately for each. Additionally, Line 11b has been split into two parts:

  • The first providing the calculation based on the prior year’s effective interest rate
  • The second providing the calculation based on the prior year’s actual return

Refer to the instructions if the valuation date for the prior plan year was not the first day of the plan year. Line 15 instructions have been expanded to address situations in which the Adjusted Funding Target Attainment Percentage (AFTAP) was not certified for the plan year, while Line 27 has been revised to reflect changes under the Cooperative and Small Employer Charity Pension Flexibility Act of 2014.

Form 5500 – Form M-1 Compliance Information

In general, Multiple Employer Welfare Arrangements (MEWAs) are arrangements that offer health and other benefits to the employees of two or more different employers (including self-employed individuals). If plans are determined by the Secretary of Labor to be collectively bargained, then they are exempt from filing Form M-1. Plans claiming this exception without a determination from the DOL are considered Entities Claiming Exception (ECEs) and have special filing requirements (covered in more detail below). Additionally, all MEWAs that are employee welfare benefit plans under ERISA are now subject to the Form 5500 annual report, notwithstanding the general Form 5500 filing exceptions.

For 2013, the Form M-1 compliance information was required to be filed as a Form 5500 attachment. However, it now appears on the Form 5500 as three new questions: 11a, 11b and 11c. These new lines only apply to welfare benefit plans and ask if the plan is in compliance with M-1 filing requirements. The separately filed Form M-1 is now used to report the required information concerning a MEWA and any ECE.

Form M-1 Electronic Filing by MEWA and ECE Separate from the Form 5500

While most of the changes may seem minor, the Form M-1 is substantively different from previous years and now requires filers to include custodial and financial information relating to the MEWA or ECE.

The Form M-1 must be filed no later than March 1 following any calendar year for which a filing is required. There is a one-time extension that can be filed and should automatically be granted. The new rules do, however, impose stricter 30-day filing deadlines for MEWA registration and ECE origination and special filing events. In addition to the annual reports, for the first three years from origination, MEWAs and ECEs must now file 30 days prior to operating in any state or within 30 days of knowingly expanding operations in an additional state, experiencing a merger, a participant increase of 50 percent or greater, or a material change.

Regarding the filing of annual reports for ERISA plans, there is much truth in the old adage that claims “the devil is in the details.” Even seemingly minor mistakes or failure to comply with requirements can be costly. Therefore, keeping up to date on reporting changes can help mitigate the risk of filing incorrectly and exposure to undue scrutiny by the enforcement agencies and/or costly penalties.

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