DOL 5500 Notices

[Dawn Hafner]

Has anyone been receiving DOL notices on 1999 5500s regarding the fact that the plan did not fill out Schedule R information regading minimum funding when the plan is clearly not subject to minimum funding?

We have received these on 3 of our ESOP clients so far. We called the DOL and they said that any 5500 that did not indicate a code 2E for profit sharing will be expected to be subject to minimum funding and they will be looking for that information on Schedule R.

So now, to avoid a notice, we are supposed to include a profit shairng code of 2E for our ESOPS! Doesn't make a lot of sense to me.

Anyone else?

[Guest CTYSON]

One of our clients received the same letter and we came to the same conclusion--we need to use code 2E along with the ESOP code. This makes some sense I guess in that there are ESOP's with a money purchase feature.

[Guest J. David Wright]

It is not just ESOP's. It is also 401(k) Plans. My interpretation of Section 8 Form 5500 is that they are looking for benefits. A 401(k) by definition must be a profit sharing plan and is not subject to MFS. MP's and Target plans are subject to MFS. Logic would say that if you entered 2B,MP or 2C, TGT this response would trigger MFS quesitions in Schedule R. Therefore, if a 401(k) plan did not make Profit sharing contributions, I did not list Code 2E, Profit Sharing. I have since been told that even if I had entered 2E that the same notice could have been triggered, like there is some sort of logic problem with the DOL's scanner or computer interpretation of data.

I think to date, we have had sixteen 1999 401(k) plan returns kicked out with the same MFS issue, all filed in September 2000. After discussions with our software provider, I am told that the DOL has stopped sending these letters out. Who know! They may have already sent out 10 or 20,000. We set up a form letter to respond.

[Guest Emiliano]

The DOL Help Desk told me that this particular edit test letter has been "turned off". Letters with this "deficiency" will not be sent in the future.

[Richard Anderson]

J. David Wright,

We mark 2E on all 401k and profit sharing plans, whether a ps contribution is made or not. I don't think that they are asking whether a ps contribution was made, they want to know the features of the plan.

[Richard Anderson]

I found this on Corbel's website:

http://www.corbel.com/news/pensionupdatesd...tail.asp?ID=132

Form 5500 – Schedule R Alert (4/25/01)

Recently, a number of practitioners have contacted us regarding DOL error letters they are receiving with respect to the Schedule R (Form 5500) and conflicting advice on how to correct the problem. Specifically, the DOL correspondence indicates an employer needs to address the minimum funding questions on the Schedule R even though the plan for which the employer is filing the Form 5500 is a 401(k) plan.

Some government representatives on Help Lines have suggested an employer should complete Schedule R for a 401(k) plan by checking the "N/A" box under question 4. However, the Schedule R and the instructions clearly indicate that profit sharing plans, ESOPs and stock bonus plans do not complete any questions beyond question 2. The proper method for correcting or avoiding a DOL error letter regarding this issue is to properly complete question 8a of the Form 5500.

Many practitioners completing Form 5500s for 401(k) plans are including code "2J" for 401(k) plans but are not including code "2E" (profit sharing plan), "2I" (stock bonus plan), "2O" (non-leveraged ESOP) or "2P" (leveraged ESOP) because the employer is not making a profit sharing contribution or because the practitioner thinks the 401(k) code is sufficient. Although practitioners generally use the term "401(k) plan," the 401(k) rules require that a 401(k) arrangement be a part of a profit sharing or stock bonus plan. Therefore, a practitioner should always include code 2E, 2I, 2O or 2P with a code 2J.

Charles E. McLaughlin, DOL Chief of Returns Processing, has informed us that by including codes 2E, 2I, 2O or 2P, EFAST will not expect any responses after question 2 in the Schedule R. Likewise, if the employer does not include the appropriate codes, EFAST will expect answers to the minimum funding questions. A practitioner preparing a Form 5500 for a 401(k) profit sharing plan should include both code 2E and code 2J on question 8a of Form 5500.

Note: We discuss questions such as this one in our Form 5500 Workshop. If you are interested in attending our Form 5500 Workshop, you may access the schedule under "Events."

[TPAVP]

I just returned from a Corbel 5500 seminar and the DOL is asking what the plan features are. You cannot have a "401(k) Plan". It has to be part of a Profit Sharing, Stock Bonus, etc. So if the code does not indicate that the plan is a Profit Sharing, or some other plan, the DOL will kick it back and say that it is subject to minimum funding and will expect to see the related schedule.

I have not heard that they plan to "turn off" that switch. If they are, that is great, but to be accurate, the 401(k) feature must be accompanied by something else.

[Guest Emiliano]

They "turned off that switch". The way the computerized edit test was written, every ESOP that completed the form correctly would have received a letter.