G-1 Q: How and when is the accounting information for a 401(k) plan reported to
the IRS?
A: A plan's accounting information must be reported to the IRS each year on
the Form 5500, which includes an income statement and balance sheet. Plans with 100 or
more participants must be audited by an independent accountant.
G-2 Q: What information is reported on the Form 5500?
- TOP
A: The Form 5500 must provide a statement of assets and
liabilities, a statement of changes in net assets available for plan benefits and footnotes discussing
changes in funding policy or plan benefits. Other information that must be reported includes:
the number of participants in the plan; the names and addresses of the plan's fiduciaries; the names of
any people paid compensation from the plan, along with the amounts they received and the nature of
the services they provided; and explanations for any changes in the plan's trustee, accountant,
insurance carrier, administrator, custodian or investment manager.
G-3 Q: Is there a penalty for failing to file the Form 5500?
- TOP
A: Yes. Two separate penalties apply to the plan and to the plan
administrator. For the plan, the Internal Revenue Code imposes a $25-a-day penalty for failing to
file a Form 5500, up to a maximum of $15,000. Under ERISA, a plan administrator also may be
subject to a penalty of up to $1,000 per day for failing or refusing to file the Form 5500.
This penalty must be paid by the plan administrator, not by the plan. In April 1995, the Dept. of Labor
put in place a Delinquent Filer Voluntary Compliance (DFVC) program for those who have failed to
file Form 5500. Those delinquent filers who come forward will have their penalties
greatly reduced.
G-4 Q: Does an employer have to report an employee's 401(k) distribution to the IRS? - TOP
A: Yes. All distributions from a 401(k) plan must be reported to
the IRS on Form 1099-R, "Statement for Recipients of Total Distributions From Profit-Sharing, Retirement Plans, Individual
Retirement Accounts, Etc." The employee must be provided with a copy of the 1099-R form as well.
G-5 Q:
What must be included in a SAR? - TOP
A:
1. name of the plan and employer ID number
2. the period covered by the annual report
3. a basic financial statement of the plan
4. a notice advising the participant that a copy of the full annual report
is available on request, that the individual may obtain add'l info
regarding the annual report, and that the individual may inspect the annual report
at a designated location of the employer or at the DOL.
G-6 Q:
What are the audit requirements for small 401(k) plans? - TOP
A:The audit being referred to here is not the typical one done by an IRS agent. It's the audit required to be performed each year by an independent public accountant of a qualified retirement plan, which must be attached to the annual return filed with the Department of Labor (form 5500).
Up to now plans with less than 100 participants ("small plans") were automatically exempt from this audit requirement. Under final regulations issued last year by the Department of Labor, such plans may still be exempt from having the accountant's audit done. However, to have this requirement waived, small plans will now have to take
four additional steps.
1) At least 95% of the assets of the plan constitute "qualifying plan assets" (defined below), or any person who handles plan assets that do not constitute qualifying plan assets is bonded in accordance with section 412 of ERISA for the amount of such non-qualifying assets.
All 401(k) Pro, Inc. clients use only qualifying assets (mutual funds, self-directed brokerage accounts, etc.)
2) The plan administrator is required to file an annual report (form 5500) each year with the Department of Labor. A summary of form 5500, called the Summary Annual Report, must be provided to each plan participant and beneficiary. Small plans will now have to include the following additional information in the Summary Annual Report in order to be exempt from the audit rules:
The name of each regulated financial institution holding or issuing qualifying plan assets and the amount of such assets reported by the institution as of the end of the plan year. However, this does not include employer securities, participant loans that satisfy ERISA section 408(b)(1) and participant-directed individual accounts.
For 401(k) Pro, Inc. users the only financial institutions that need to be identified are the mutual fund companies.
3) The name of the surety company issuing the bond, if more than 5% of plan assets are non-qualifying assets.
This requirement is moot for 401(k) Pro, Inc. plans.
4) A notice stating that participants and beneficiaries should contact the Regional Office of the U.S. Department of Labor's Pension and Welfare Benefits Administration if they are unable to examine or obtain copies of the regulated financial institution statements or evidence of the required bond, if applicable.
G-7 Q:
What is a "limited scope" audit? - TOP
A:
A "limited scope" audit can be performed by a CPA firm when the pension plan assets are held by a bank, trust company or other such institution. It includes a review of the investment statements, the trustee's internal controls, employee eligibility, participant data and plan distributions. In 401(k) plans, confirmation of participant data typically includes deferral elections and individual account investment elections. This type of audit is rarely done by our clients because the auditors must be very involved with the investment companies housing plan assets.
G-8 Q:
What are the audit requirements for a large 401(k) plan? - TOP
A:
Any plan that has 100 or more participants at the beginning of the plan year is considered a large plan, and must file a certified accountant's audit report with form 5500. In a 401(k) plan, the term "participant" includes any employee who is eligible to defer a portion of his compensation into the plan, whether or not he actually does defer or otherwise receives a contribution allocation.
Where the number of participants is between 80 and 120 and an annual report was filed last year, the plan administrator may elect to treat the plan in the same manner as the previous year, even though the current participant count would otherwise put it in a different category.
Example: The annual report filed for 1999 reflected a total participant count as of the beginning of the year of 90. The plan was thus considered a "small plan" exempt from the audit requirement. In 2000, the plan had 105 total participants as of January 1. The plan would normally be considered a large plan for 2000, but the administrator may elect small plan status since the participant count does not exceed 120 and it had small plan status last year.
In the same manner, an administrator could elect large plan status if the participant count dropped from 110 last year to 95 this year, although there isn't much incentive to make that election.
G-9 QUICK REFERENCE CHARTS - TOP
The agencies developed two reference
guides regarding the new Form 5500: Profile of Form 5500 Components and
Quick Reference Chart for Filing the New Form 5500. Both are printed
below.
PROFILE
OF FORM 5500 COMPONENTS
Form
Component |
Type
of Information Collection |
Description |
| Form 5500 |
Overview
information on type of annual return/report, type of plan, and schedules
attached. |
Basic
information identifying the filer with checklist for attached schedules. |
| Schedule A |
Information on
contracts with insurance companies for plans and certain DFEs. |
Revised by
adding questions to collect better data on type and value of insurance
contracts. |
| Schedule B |
Actuarial
information on defined benefit pension plans. |
Minor revisions
to update for 1999 requirements. |
| Schedule C |
Information on
service providers for large plans and certain DFEs. |
Limited to 40
highest paid service providers, eliminated list of trustees, and limited
termination notice to accountants and enrolled actuaries. |
| Schedule D |
Information on
participation in certain pooled investment/insurance arrangements (CCTs,
PSAs, MTIAs, 103-12 IEs and GIAs). |
New
standardized form for reporting information about Direct Filing Entities
(DFEs) and participating plans.
|
| Schedule E |
Information on
ESOP plans.
|
No material
revisions. |
| Schedule F |
Information on
fringe benefit plans.
|
No material
revisions. |
| Schedule G |
Information on
nonexempt transactions and loans, leases and fixed income investments in
default/uncollectible for large plans and certain DFEs. |
Streamlining
current schedules of loans, leases, fixed income obligations in default/uncollectible
and nonexempt transactions. (Note: Schedules of assets and reportable
(5%) transactions are required to be filed, but not on computer
scannable forms.) |
| Schedule H |
Financial
statements and related information for large plans and DFEs. |
New schedule
streamlining large plan financial questions on current Form 5500 and
consolidating them into a separate schedule. |
| Schedule I |
Financial
statements and related information for small plans. |
New schedule
streamlining small plan financial questions on current Form 5500-C/R and
consolidating them into a separate schedule. |
| Schedule P |
Tax exempt
pension trust files to start IRS statute of limitations. |
No material
revisions. |
| Schedule R |
Information on
pension plans including plan distributions and funding requirements. |
New schedule
revising pension plan questions on current Form 5500 and Form 5500-C/R
and consolidating them into a separate schedule. |
| Schedule T |
Information on
pension plan tax qualification requirements. |
New schedule
revising tax qualification questions on current Form 5500 and Form
5500-C/R and consolidating them into a separate schedule that can be
filed in accordance with the 3-year testing cycle under Rev. Proc.
93-42. |
| Schedule SSA |
Information
required by Social Security Administration for pension plans on
separated participants with rights to future benefits. |
No material
revisions. |
| QUICK REFERENCE CHART FOR FILING
THE NEW FORM 5500
|
|
|
Large
Pension
Plan
|
Small
Pension
Plan |
Large
Welfare
Plan |
Small
Welfare
Plan |
DFE2 |
Fringe
Benefit Plan |
| Schedule A
(Insurance Information) |
Must complete if
plan has insurance contracts. |
Must complete if
plan has insurance contracts. |
Must complete if
plan has insurance contracts. |
Must complete if
plan has insurance contracts. |
Must complete if
MTIA, 103-12 IE or GIA has insurance contracts. |
Not required. |
| Schedule B
(Actuarial Information) |
Must complete if
defined benefit plan and subject to minimum funding standards. |
Must complete if
defined benefit plan and subject to minimum funding standards. |
Not required. |
Not required. |
Not required. |
Not required. |
| Schedule C
(Service Provider Information) |
Must complete
if service provider was paid $5,000 or more and/or an accountant or
actuary was terminated. |
Not
required. |
Must complete
if service provider was paid $5,000 or more and/or an accountant or
actuary was terminated. |
Not
required. |
MTIAs, GIAs and
103-12 IEs must complete Part I if service provider paid $5,000 or more.
GIAs and 103-12 IEs must complete Part II if accountant was terminated. |
Not
required. |
| Schedule D (DFE/Participating
Plan Information) |
Must complete
Part I if plan participates in a CCT, PSA, MTIA, or 103-12 IE. |
Must complete
Part I if plan participates in a CCT, PSA, MTIA, or 103-12 IE. |
Must complete
Part I if plan participates in a CCT, PSA, MTIA, or 103-12 IE. |
Must complete
Part I if plan participates in a CCT, PSA, MTIA, or 103-12 IE. |
All DFEs must
complete Part II, and DFEs that invest in CCT, PSA, or 103-12 IE must
also complete Part I. |
Not required. |
| Schedule E (ESOP
Information) |
Must complete if
ESOP. |
Must complete if
ESOP. |
Not required. |
Not required. |
Not required. |
Not required. |
| Schedule F
(Fringe Benefit Plan Information) |
Not required. |
Not required. |
Not required. |
Not required. |
Not required. |
Must complete. |
| Schedule G
(Financial Schedules) |
Must complete if
Schedule H, lines 4b, 4c, or 4d are "Yes."3 |
Not required. |
Must complete if
Schedule H, lines 4b, 4c, or 4d are "Yes."3,4 |
Not required. |
MTIAs, GIAs and
103-12 IEs must complete if Schedule H, lines 4b, 4c, or 4d are
"Yes."3 |
Not required. |
|
Schedule H (Large Plan and DFE
Financial Information) |
Must complete. |
Not required.
|
Must complete.4 |
Not required.
|
All DFEs must
complete Parts I, II & III. MTIAs, 103-12 IEs, and GIAs must also
complete Part IV. |
Not required.
|
| Schedule I
(Small Plan Financial Information) |
Must complete. |
Not required. |
Not required. |
Must complete.4 |
Not required. |
Not required. |
| Schedule P
(Annual Return of Fiduciary) |
Must file to
start running of statute of limitations under Code section 6501(a). |
Must file to
start running of statute of limitations under Code section 6501(a). |
Not required. |
Not required. |
Not required. |
Not required. |
| Schedule R
(Retirement Plan Information) |
Must complete
unless plan is neither a defined benefit plan nor subject to Code
section 412 or ERISA section 302 and no benefits were distributed during
the plan year. |
Must complete
unless plan is neither a defined benefit plan nor subject to Code
section 412 or ERISA section 302 and no benefits were distributed during
the plan year. |
Not
required. |
Not
required. |
Not
required. |
Not
required. |
| Schedule
SSA (Statement Identifying Separated Participants
With Deferred Vested Benefits) |
Must complete
if plan had separated participants with deferred vested benefits to
report. |
Must complete
if plan had separated participants with deferred vested benefits to
report. |
Not
required. |
Not
required. |
Not
required. |
Not
required. |
| Schedule T
(Qualified Pension Plan Information) |
Must complete if
qualified plan unless permitted to rely on coverage testing information
for prior year. |
Must complete if
qualified plan unless permitted to rely on coverage testing information
for prior year. |
Not required. |
Not required. |
Not required. |
Not required. |
| Accountant’s
Report
|
Must attach |
Not required. |
Must attach |
Not required. |
Must attach for
a GIA or 103-12 IE. |
Not required. |
| 1. This chart provides only
general guidance. Not all rules and requirements are reflected. Refer to
specific Form 5500 instructions and regulations for complete
information.
2. DFE (Direct Filing Entitly) includes: bank common or collective
trusts (CCTs) and insurance company pooled separate accounts (PSAs)(29
CFR 2520.103-3 and 103-4) that choose to file information on behalf of
their participating plans; master trust investment accounts (MTIAs)(29
CFR 2520.103-1(e); investment entities filing under 29 CFR 2520.103-12
(103-12 IEs); and group insurance arrangements (GIAs) filing under 29
CFR 2520.103-2 and 104-43.
3. Schedules of assets and reportable (5%) transactions also must be
filed with the Form 5500 if Schedule H, lines 4i or 4j are
"Yes," but use of scannable form not required.
4. Unfunded, fully insured and combination unfunded/insured welfare
plans covering fewer than 100 participants at the beginning of the plan
year that meet the requirements of 29 CFR 2520.104-20
are exempt from filing an annual report. Such a plan with 100 or more
participants must file an annual report, but is exempt under 29 CFR
2520.104-44 from the accountant’s report requirement and completing
Schedule H, but MUST complete Schedule G, Part III, to report any
nonexempt transactions. |
G-10 Q:
If an employee terminates employment in
1999 and leaves his 401(k)account with a balance, is he still considered a "participant" on the 5500 in 2000? - TOP
A:
Yes, an employee who terminates employment but leaves behind his/her
401(k) balance is still considered a "participant" for the IRS 5500. If an
account balance remains then the participant is included in the number of participants entered on line
6 of the 5500. The participant
count is based in line 6 of the 5500. "Participant" means any individual who is included in
one of the following categories:
From the 2000 5500 Instructions:
1. Active participants include any individuals who are currently in
employment covered by a plan and who are earning or retaining credited service under a plan. This category includes any
individuals who are eligible to elect to have the employer make payments to a Code section 401(k) qualified cash or deferred
arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under
a plan. This category does not include
-
(a) nonvested former employees who have incurred the break in service period
specified in the plan or
(b) former employees who have received a "cash-out" distribution or deemed distribution of their
entire nonforfeitable accrued benefit.
2. Retired or separated participants receiving benefits are any
individuals who are retired or separated from employment covered by the plan and who are receiving benefits under the plan. This
includes former employees who are receiving group health continuation coverage benefits pursuant to Part 6 of ERISA and who
are covered by the employee welfare benefit plan. This category does not include any individual to whom an insurance
company has made an irrevocable commitment to pay all the benefits to which the individual is entitled under the plan.
3. Other retired or separated participants entitled to future benefits
are any individuals who are retired or separated from employment covered by the plan and who are entitled to begin receiving
benefits under the plan in the future. This category does not include any individual to whom an insurance company has made an
irrevocable commitment to pay all the benefits to which the individual is entitled under the plan.
4. Deceased individuals who had one or more beneficiaries who are
receiving or are entitled to receive benefits under the plan. This category does not include an individual if an insurance
company has made an irrevocable commitment to pay all the benefits to which the beneficiaries of that individual are entitled under
the plan.
G-11 Q:
When a participant takes a 401(k) loan, how is it reported in the IRS 5500? - TOP
A:
Loan withdrawals are reported on line 1(a) of the IRS 5500 because
participant loans are considered plan assets that have not been removed from
the plan, but merely moved from one " asset catergoy" within the plan to
another. No plan assets have been distributed as such, and thus the loan is
not reported as a distribution in the IRS 5500. [From Tagdata.com 5/9/01].
G-12 Q:
What is required for IRS 5500 reporting for 403(b) plans? - TOP
A:
403(b) plans are eligible for limited annual reporting. They need to only
complete form 5500 part I and part II, lines 1 through 5, and 8 (enter
pension code 2L or 2M or both).
G-13 Q: When a
company's plan is top heavy and makes the 3% corrective contribution,
when must it be made by? Also, if the corrective contribution is made
after the plan year, how is it included in the 5500?? - TOP
A: IRS has not stated a deadline for top heavy
contributions. Generally, the due date of the employer's return is
considered the limit. TAG's opinion is that the top heavy minimum must
be made within 12 months after the end of the plan year. This is the
same 12 month rule that applies to deferrals and matching
contributions in a 401(k) plan. It will be classified as a employer
contribution for 5500 purposes. (TAG)
G-14 Q: Is it true that there
is no longer a 20% back-up withholding requirement required for 401(k)
hardship withdrawals?- TOP
A: Yes. (TAG 8/01)
G-15 Q: Does the 20% back-up
withholding still apply to all lump-sum distributions from a 401(k)
plan?- TOP
A: Yes. (TAG 8/01)
G-16 Q: When an employee terminates employment and takes a lump sum distribution,
what form is used to send with the 20% backup withholding which is sent to
the IRS? How soon after the distribution is made must this payment be
made? - TOP
A: Federal Tax Deposit Form (Form 8109-B). Generally, income tax withheld from plan payments must be deposited with an authorized financial institution or a Federal Reserve bank or branch. A Federal tax deposit form must be included with each deposit. The timing requirement follows payroll withholding deposit rules.
G-17 Q: Which states allow participants in a 401(k) plan to defer the state income
tax on their 401(k) deferrals? - TOP
A: Those states (in 2000) following federal law on the treatment of Code Sec.
401(k) contributions are:
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Rhode Island
South Carolina
Utah
Vermont
Virginia
West Virginia
Wisconsin |