JohnCheek

TxAtty: The scenario you describe doesn't seem, to me, to be enough to cause the plan to be funded. Benefits are still coming exclusively from the employers general assets, not from earnings or any other source; the employer has simply outsourced the clerical function of paying claims. Furthermore, any monies held by the TPA in excess of claims are still employer dollars.

There are a number of recent Advisory Opinions on the PWBA web site that address governmental plans, ie, plans where all of the participants are employees of a governmental entity (or only a diminimus number are not). If you think you can qualify as governmental, under the new sponsor, I think you should have the plan's attorney request an Advisory Opinion to that effect. If DOL accepts your position, you should be able to eliminate the ERISA auditing and reporting requirements (Form 5500 etc). However, you still have IRS and PBGC to deal with, and they don't have to agree with DOL's definition of "governmental" as it pertains to IRC funding standards, etc, or PBGC premiums. I think that means your attorney would then have to get some kind of ruling from IRS and PBGC, also.

Going back to the original post, what is a "passive trustee" ??

If you really want to split hairs, the Schedule P does not start the statute of limitations on the 5500, it starts the statute of limitations running on the tax-exempt Trust that is holding the assets of the pension plan. It's important because, if the Plan is somehow disqualified, the Trust becomes taxable. And, it really only needs one trustee, any trustee, to file a schedule P to accomplish that.

This sounds like a combination welfare plan/fringe benefit plan, and the reporting requirements are a combination of welfare and fringe reporting, but they are not too onerous. First, since there is one plan document describing all of the benefits, and I assume "eligibility" for all types of benefits is uniform, it looks like one 5500 would be appropriate. If eligibility for different benefits were based on different criteria, you might have more than one plan. On 5500 page 4, check both box 8b and 8c. The single filing clearly needs one Schedule F for all of the cafeteria-type benefits, everything that is offered as cash-or-choice-of-benefits on a use-it-or-lose-it basis. Schedule A is not needed to report insurance data on these benefits. To the extent that you have other types of benefits, they represent the welfare plan; for this, it appears an audit is not needed, because funding and benefits are a combination of unfunded and fully insured. Your 5500 will need Sched. A's for each "welfare plan" insurance contract, Sched C for service provider data (and change of accountant), Sched D if applicable (but probably not), Sched G if any prohibited transactions, and no H or I. If you want to discuss the benefits or filing requirements in more detail, feel free to call me. John Cheek, CPA NY: 716-226-2621 ____________________________________ ERISA Audits www.cpaSPAN.com

Simple question: are EAP programs considered Welfare plans subject to a 5500 filing? I did a search on BenefitsLink and got some background on EAP, such as does COBRA apply, but I was hoping someone has already done the research for 5500 purposes.

Yes. I teach an 8 hour course, "Preparing Form 5500", for a seminar company called Center for Professional Education, in Paoli, PA. The course has been offered from NY, TX, CA, FL, MD. For scheduling etc, call CPE at 800-544-1114.

Your client might be thinking of the 80/120 rule, which allows a plan that previously had under 100 participants, and therefore filed as a small plan (no audit), to elect to continue to file as a smal plan if total participants at beginning of year are between 80 and 120. Since your client did not file as a small plan last year, the election does not apply. You need an audit.

Nope. A GIC is a contract with an in insurance company that is reportable on Schedule A, and of course Schedule I or H, but a GIC is not one of the entities that could be a Direct Filing Entity. Entities that "could be" DFEs are reportable on Schedule DFE.

As I understand it, the Plan does not have to cover all members of the group, but a controlled group is treated as a single employer for purposes of the discrimination testing, unless portions can be carved out as QSLOBs

Also, if the two corps fit the definition of qualified separate lines of business, they could be treated as unrelated for purpose of the coverage tests.

If the parent/sub are a controlled group, then they would be treated as a single employer; If that single employer has one plan, it needs one filing. If it has two plans, each plan should determine its filing requirement separately. A welfare plan that is fully insured, fully funded from employers general assets, or a combination of the two, does not have to file if it has less than 100 participants. The participant pretax contributions, as I recall, do not violate this exception. However, if the plan is funded by means of a trust, it does have to file. All plans with over 100 participants do have to file. Note: even though a plan must file the 5500, if the welfare plan is insured and/or unfunded, you should not need Schedule H, and therefore should not require an audit. Note: you are correct, both plans must file a 5500 and Schedule F if they are providing Section 125 benefits. None of the filing exceptions for welfare plans allows a Section 125 plan to not file.

You're right, line 15 is not enough. Enter gross distrib on 15a. Figure taxable amount on Form 8606., and enter that taxable amount on 15b.

My position is that the custodian should not have to issue a corrected 1099-R. It is perfectly ok for the custodian to report the entire amount in the taxable box; the custodian normally will not have any information to indicate if any of the distribution comes from nondeductible contributions. It is the account owner's responsibility to track nondeductible contributions. On your 1040, report the full amount of the distribution in box15a, and report the amount that is taxable in box 15b. For an IRA, it should not matter that your box 15b does not agree with the custodian's "taxable amount".

Code 7- normal distribution- means the recipient was over 59-1/2, and not subject to a penalty for early distribution. On Form 1099-R, the IRA custodian has to report the full amount as taxable, based of the custodian's records. If you later complete the rollover within the 60 days, you can report the full distribution, and indicate that nothing is taxable, on your 1040.

Box 1- gross distribution. 2a- taxable amount 3- mark total distrib 4- fed w/h, if any 7- distribution code, and mark next box for "IRA" 10- of any state tax w/h Also, all the name and address and EIN boxes

I don't see this as a problem. The exception for filing the 5500 for "under 100" welfare plans is a)unfunded, b)fully insured or c)a combination of unfunded and insured. For this purpose, "unfunded" means benefits are paid from the general assets of the employer/sponsor. Expressed another way, the Plan has no assets and there is no trust. The rules allow for participant contributions towards the cost of insurance premiums, etc. As long as participant contributions are remitted to the insurance company timely (I think the limit is 90 days, but I'm doing this from memory), they do not cause the plan to be other than unfunded/insured, so a 5500 is not needed. COBRA buy-ins should not be any different.

I just got these unusual questions from a seminar participant; unusual because I rarely see employee benefit plans with any foreign investments: 1) Are all ERISA financial transactions reported in Base currency? - (USD as base) 2) Should the Fx Gain and loss be included in the Acquire & Dispose and Revalued cost schedules? 3) If so how should it be classified? (FX gain or loss or included in the overall gain or loss total)? My initial thought is that the currency changes would be included in the appreciation/depreciation in fair value of investments. I don't recall seeing any other guidance. Does anyone else have suggestions?

1. While the IRS may be forgiving, you also have to contend with the DOL. I suggest you check out their deliquent filer programs, because they will take the position that no Form 5500 was filed, for all years, if a correct return was not filed for each plan. You very much should discuss this with an attorney with ERISA expertise. 2. I think the same rules apply to welfare plans. One 5500 for each plan. The problem in welfare plans is that it is more difficult to determine what constitutes a separate plan; one plan can offer a variety of benefits, such as health, dental, death, etc. Or, each of these might constitute a separate plan. It depends, in part, on the documentation establishing the plan(s).

I don't think VCR applies. Instead, you should check out the Delinquent Filer Voluntary Compliance program on the DOL/PWBA web site. As I recall, you can resolve prior year nonfiling penalties with a fine that varies by the size of the plan, from $2,000 to $5,000. I do not know whether (or how) it applies to a one person plan.

First, I would make sure the client removed all personal funds, and income earned thereon, from the account. For reporting purposes, I would only report the assets and income of the Plan, even if the brokerage account erroneously had funds that did not belong to the plan. Could this be a prohibited transaction? It's not really a loan; maybe the sponsor is dealing with plan assets for his own benefit,somehow benefitting by using the plan's brokerage account? I doubt it, too much of a stretch.

In theory, accounting standards are set by the private sector, by the Financial Accounting Standards Board (FASB), with other entities getting involved in some areas (GASB sets govt. accounting standards, etc). In practice, the SEC, DOL, various state regulatory agencies, and even Congress, periodically threaten to impose standards. The accounting and auditing standards, as well as specific ERISA reporting standards, are not difficult. There are enough resources that any CPA should be able to meet the requirements, IF they are willing to devote the time to use the resources. That, however, is the problem: accountants who only audit one or two plans are less likely to spend the time to really understand how employee benefit plan audits are unique, and therefore they are much more likely to submit financial statements that do not comply with professional standards and DOL requirements.

Kip: EVERY case I've seen where the DOL rejected a 5500 was due to inadequacies and errors in the audited financial statements. The most expensive: a finacial statement and opinion addressed the Trust, not the Plan, and, by the way, DOL decided it was two plans, not one; DOL rejected 7 years of filings and proposed penalties of $1.3 million. Next: an accountant's report omitted the word "independent" in its title; also, a few footnotes were missing, such as the termination of plan note, etc. And again, DOL felt there were two plans, not one; in this case, however, DOL felt one of the two was a pension, and the other was a welfare. Since the trustees insisted this was one plan, a welfare plan, most footnotes were welfare plan notes; DOL cited some missing "pension-type" notes as another reason for rejection. Also the 5500 used plan number 501, when pension plans must start at 001. Proposed penalty for "two" plans, with 5 years rejected, $900,000. Another rejection: a welfare plan missing as few footnotes, and the accountant's report did not address the supplemental schedules. Penalty: waived, once corrected financials were submitted. Does DOL have the authority to poke around the accountant's work? Yup. ERISA specifies what must be included in the financial disclosures, and gives DOL authority to reject incomplete filings. If the accountant does not comply with ERISA disclosure requirements and generally accepted accounting principles, expect to hear from DOL. Why is DOL so interested? DOL only has about 450 investigators to ride herd on about 5 million plans; it has to rely on auditors do do what the law and professional standards say they are doing.

>>>The question I have is Why does the DOL need this information? After more than ten years of looking at the quality of audits, DOL concluded that some firms do better work than others. DOL's plan to force better work: require the auditor's EIN on the 5500. Think about it; if DOL had the ability to pull ALL of your clients at once, and could impose massive penalties on ALL of them, based on your failure to include all required footnotes (for exemple), do you think you might work harder at getting the audit right? With regard to the missing EIN, if the 5500 goes in without the audit report, it's already incomplete, and the missing EIN won't make matters worse. I would file NOW with an explantion that the audit has not yet been completed. Then, as soon as possible, I would file an amended report including the audit report and EIN.

You might want to consider the union members as separated participants entitled to future benefits (line 7c); then they are included in the total at line 7f, and the instructions say 7g is the number of item 7f people who have account balances.