Form 5500 Plan Characteristic Code 2T

[ldr]

Hi To All,

Who would like to settle a tiny difference of opinion in our office?  One of us thinks that Plan Characteristic Code 2T would apply to ALL such plans (with participant directed accounts) as those maintained by John Hancock, American Funds, Mass Mutual, Lincoln  et al because there is a mechanism of some sort in dealing with money belonging to participants who never made a fund election.  It won't just sit in cash. Typically it goes to a Target Date fund based on the participants' birthdays but it could be something else.  So wouldn't all such plans automatically check 2T on the 5500?  The other person in our office  thinks that 2T only applies if there actually are participants who have defaulted into the automatic investment.  He thinks that merely having the provision is not enough; there must actually be such people in the plan.  

What do the experts say?  Thanks!

 

 

 

 

[chc93]

Similar question that may or may not help.  What about a plan that has a discretionary match provision, but a discretionary match has never been made (no participant has a match).  Would you use code 2K or not... I generally would use 2K even if no participant has a match since it is a plan characteristic (provision).  So if no participant has a QDIA, but it is a plan characteristic, I would probably use code 2T.

[ldr]

@chc93 - Thanks for the thoughts - I had a similar idea as well.  Now you've opened another can of worms, though.  A plan can have a default investment arrangement without that arrangement necessarily being a QDIA.  I only found this out a couple of days ago in dealing with a John Hancock case that has a EACA.  To properly fill out the Annual Notice, I had to know whether the plan has an automatic investment, and if so, whether it is a QDIA.  I posed the question to John Hancock and their answer was "We don't know.  Ask the investment advisor. There are 4 different criteria that may make it a QDIA and we can't make that determination." in a nutshell.

So does 2T refer to any automatic investment arrangement, or only those that are somehow determined to be QDIAs?

I am about to decide I am sorry I ever asked this question.  If I have to go hunting whether or not any participants happen to have been put into a default arrangement, and if I have to try to find out whether the default investment is indeed a QDIA, I am going to lose way too much time on what should have been a quick question on the 5500....

 

[chc93]

14 minutes ago, ldr said:

@chc93 - Thanks for the thoughts - I had a similar idea as well.  Now you've opened another can of worms, though.  A plan can have a default investment arrangement without that arrangement necessarily being a QDIA.  I only found this out a couple of days ago in dealing with a John Hancock case that has a EACA.  To properly fill out the Annual Notice, I had to know whether the plan has an automatic investment, and if so, whether it is a QDIA.  I posed the question to John Hancock and their answer was "We don't know.  Ask the investment advisor. There are 4 different criteria that may make it a QDIA and we can't make that determination." in a nutshell.

So does 2T refer to any automatic investment arrangement, or only those that are somehow determined to be QDIAs?

I am about to decide I am sorry I ever asked this question.  If I have to go hunting whether or not any participants happen to have been put into a default arrangement, and if I have to try to find out whether the default investment is indeed a QDIA, I am going to lose way too much time on what should have been a quick question on the 5500....

 

Well... the 5500 instructions for code 2T is "Total or partial participant-directed account plan – plan uses default investment account for participants who fail to direct assets in their account."

Instructions seem to say DIA, and not QDIA.  So any DIA provision would use 2T, qualified or not.

[ldr]

That sounds logical to me (not to mention that it's what I wanted to hear :)

If we have that much resolved, then all that remains is whether you report it whether or not anyone is actually using it.  And for that, I agree with your logic on the match - if the plan provides for it, I also report it even if the employer never actually contributed any matching contributions.  Therefore, my inclination is to use 2T whether or not any participants have ever been put into the default investment.

[BG5150]

Has anyone ever been admonished for a missing or incorrect code on a 5500 on audit or investigation?

[Bird]

2 hours ago, BG5150 said:

Has anyone ever been admonished for a missing or incorrect code on a 5500 on audit or investigation?

Gasp! 

[Kristina]

No one has been admonished for incorrect or missing characteristic codes, yet.

 

[Larry Starr]

The codes are describing the characteristics of the plan document, not whether anyone is using them.  It gives the IRS and DOL statistical information for various purposes, including audit selection. If they find no one using it, fine.  But that might cause them to investigate whether the employer is PREVENTING anyone from exercising their ERISA rights to use it.

In addition, as noted, no one ever gets in trouble for using the wrong codes.

[msmith]

I am in full agreement with Larry. We used the codes based upon the Plan Document, regardless of whether or not a participant is making use of it (including a Match provision not in use).

[BG5150]

That's true with an exception of 2A.  Use 2A if "contributions in the return year were based on...."

So, even if the doc has a grouping method for allocation, only use 2A if there were contributions made for the year.