SAR Disclosure

[nancy]

If you have a participant directed plan that has 100% its assets in qualifying assets and quarterly statements are issued by the TPA, is additional disclosure required? Since the statements are not provided to the participant by a regulated financial institution do you need to list the Financial Institution and asset values in the SAR?

[Archimage]

Nope.

[Belgarath]

Archimage - are you certain on this? I'm sometimes overly conservative on these questions - particularly with the DOL, but I'd have said that first, unless the participant is actually furnished the statement, at least annually, from the regulated financial institution, that you don't even necessarily pass the qualifying asset test. Admittedly, the investments are likely "held by" a regulated financial institution, but even if they pass this test, and are therefore qualifying assets, they wouldn't pass under the "participant directed account" exception to the SAR disclosure. Of course, the TPA could actually be the regulated financial institution, but if not, I think the SAR disclosure is required.

Maybe I just worry too much... what do you think?

[Archimage]

Correct me if I am wrong but I believe you only have to provide participants with those statements only upon request and without charge.

[Belgarath]

Archimage - I've pasted in the following excerpt from DOL 29 CFR 2520.104-46.

The original question was whether the additional disclosure on the SAR was necessary. I interpret this that it is. In other words, assuming the investment is in a "qualifying asset" the additional disclosure on the SAR is NOT required if the participant is furnished with the statement, at least annually, from the company(ies) under which they have their participant directed accounts. See the last paragraph of the excerpt. But from the sound of this question, they are not being furnished with such a statement, hence the SAR disclosure is required. This shouldn't be a big deal - they still qualify for the audit waiver, it's just that they aren't exempt from the SAR disclosure that is required from most other "qualifying assets." At least that's how I read it. But again, I may just be paranoid. Of course, I wouldn't be paranoid if everyone wasn't out to get me...

(a) General. (1) Under the authority of section 103(a)(3)(A) of the

Act, the Secretary may waive the requirements of section 103(a)(3)(A) in

the case of a plan for which simplified annual reporting has been

prescribed in accordance with section 104(a)(2) of the Act.

(2) Under the authority of section 104(a)(3) of the Act the

Secretary may exempt any employee welfare benefit plan from certain

annual reporting requirements.

(b) Application. (1)(i) The administrator of an employee pension

benefit plan for which simplified annual reporting has been prescribed

in accordance with section 104(a)(2)(A) of the Act and Sec. 2520.104-41

is not required to comply with the annual reporting requirements

described in paragraph © of this section, provided that with respect

to each plan year for which the waiver is claimed --

(A)(1) At least 95 percent of the assets of the plan constitute

qualifying plan assets within the meaning of paragraph (b)(1)(ii) of

this section, or

(2) Any person who handles assets of the plan that do not

constitute qualifying plan assets is bonded in

accordance with the requirements of section 412 of the Act and the

regulations issued thereunder, except that the amount of the bond shall

not be less than the value of such assets;

(B) The summary annual report, described in Sec. 2520.104b-10,

includes, in addition to any other required information:

(1) Except for qualifying plan assets described in paragraph

(b)(1)(ii)(A), (B) and (F) of this section, 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;

(2) The name of the surety company issuing the bond, if the plan

has more than 5% of its assets in non-qualifying plan assets;

(3) A notice indicating that participants and beneficiaries may,

upon request and without charge, examine, or receive copies of,

evidence of the required bond and statements received from the

regulated financial institutions describing the qualifying plan assets;

and

(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; and

© in response to a request from any participant or beneficiary,

the administrator, without charge to the participant or beneficiary,

makes available for examination, or upon request furnishes copies of,

each regulated financial institution statement and evidence of any bond

required by paragraph (b)(1)(i)(A)(2).

(ii) For purposes of paragraph (b)(1), the term ``qualifying plan

assets'' means:

(A) Qualifying employer securities, as defined in section 407(d)(5)

of the Act and the regulations issued thereunder;

(B) Any loan meeting the requirements of section 408(b)(1) of the

Act and the regulations issued thereunder;

© Any assets held by any of the following institutions:

(1) A bank or similar financial institution as defined in

Sec. 2550.408b-4©;

(2) An insurance company qualified to do business under the laws of

a state;

(3) An organization registered as a broker-dealer under the

Securities Exchange Act of 1934; or

(4) Any other organization authorized to act as a trustee for

individual retirement accounts under section 408 of the Internal

Revenue Code.

(D) Shares issued by an investment company registered under the

Investment Company Act of 1940;

(E) Investment and annuity contracts issued by any insurance

company qualified to do business under the laws of a state; and,

(F) In the case of an individual account plan, any assets in the

individual account of a participant or beneficiary over which the

participant or beneficiary has the opportunity to exercise control and

with respect to which the participant or beneficiary is furnished, at

least annually, a statement from a regulated financial institution

referred to in paragraphs (b)(1)(ii)©, (D) or (E) of this section

describing the assets held (or issued) by such institution and the

amount of such assets.

[Archimage]

I believe that deals with non-qualifying assets.

[KJohnson]

I think that the Reg is VERY poorly worded, but I am inclined to agree with Belgarath. There are essentially two requirements for getting out of an audit. 1) Having 95% of investments in qualifying assets and 2) Making the additional disclosure in the SAR.

Then,the regulations provide a further exception to having to make the disclosure in the SAR but that only applies if you have 100% of your assets in what I call "super-qualified" investements -- those listed in (b)(1)(ii)(A), (B) and (F)).

In this case because the TPA rather than the finanical institution is sending out the quarterly statement, it would appear that they do not fall under (F) so they cannot assert that all of their assets are "super qualified." Therefore they will need to make the additional disclosures in the SAR to get out of the audit requirement.

(To add even more complication, there is a question with regard to additional SAR disclosure even if you have 100% of your assets invested in "super qualified " assets because this only gets you out of the disclosure requirements of B(1). It appears that Section B(2) would be inapplicable, and Section B(3) would be inapplicable assuming that you are talking about the ADDITIONAL bonding requirement, but what about B(4)?)

[R. Butler]

I agree with KJohnson. We actually have plans that probably aren't required to provide the additional disclosure, but because its a fairly simple disclosure we go ahead and include it in all the SARs. I just seems pointless not to include it.

[mwyatt]

Actually, this may be a little OT, but consider a plan with $200,000 held in one brokerage account and a $30,000 receivable contribution as of the end of the year. What is everyone doing with regards to the receivable contribution amount? I've just been listing the actual cash amounts held by holder, and not referencing the receivable contribution as such on the SAR. What are other folks position on the receivable contribution?

[Guest rachd]

I was at a seminar yesterday and we went over (and over and over) the details requiring additional disclosure. According to the info I received, Qualifying Assets are: 1. Employer Stock

2. Participant Loans

3. Participant directed investments held by financial

institution w/annual stmts (not by the TPA)

4. Assets held by a bank, insurance company,

brokerage firm.

5. Mutual Funds

6. Investment and Annuity Contracts

Numbers 1-3 are considered "Limited" and require no additional reporting, however, any assets that fall under numbers 4-6 do require the additional reporting on the SAR. If participants receive statements only from the TPA and NOT directly from the financial institution, then it needs the additional disclosure.

~Rachel

[KJohnson]

I agree with you but I think someone could read the reg and come to the conclusion that EVERYONE has to have additional disclosure in the SAR. Having all assets invested in "limited" investments (your term) or "super qualified" investments (my term) only gets you out of the first of the following 4 SAR disclosure requirements:

(1) Except for qualifying plan assets described in paragraph

(b)(1)(ii)(A), (B) and (F) of this section, 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;

(2) The name of the surety company issuing the bond, if the plan

has more than 5% of its assets in non-qualifying plan assets;

(3) A notice indicating that participants and beneficiaries may,

upon request and without charge, examine, or receive copies of,

evidence of the required bond and statements received from the

regulated financial institutions describing the qualifying plan assets;

and

(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; and

The requirement in 2 would presumably be inapplicable since the premise is that 95% of the assets are invested in qualifying assets.

As to 3, if the bonding requirement is meant to refer to the bond for having more than 5% of invesments in non-qulified assets then you should be o.k. But what gets you out of the remaining langague in 3 and the reference in 4 with regard to the finanical institution statements?

Logically, it makes no sense to include this if you are excluded from disclosure under subparagraph 1, but I am not sure if this "tracks" from the exact language of the reg.

[BFree]

mwyatt - no institution is holding the receivable, so I can't see reporting it as being held

[Mike Preston]

I agree - receivables aren't included. This is a cash basis disclosure.

[mwyatt]

Thanks for the clarification - that was my gut feeling also on receivables (plus who knows where that money would ultimately end up being invested). Only thing that did concern me with the output from our software (Relius/Hyperprep) is that the totals of assets disclosed doesn't end up equalling the total assets reported in the SAR. I suppose this is a problem only if someone actually takes the time to read the SAR and use a calculator; assume that some questions may arise among participants.