Build Credibility with Expertise
by Lawrence Groves
Published on this site: July 16th, 2005 - See
more articles from this month...
As an Investment Representative you've worked hard to build
trust with your pension clients. Now, you can solidify that
long term relationship with your expertise on one of the greatest
fears of small business retirement plan sponsors.
Next to an audit, nothing frightens retirement plan sponsors
more than a notification letter from the Dept of Labor regarding
inadequacies in their responses on the Form 5500 or 5500-EZ
filing. Inadequacies that, if not corrected within 30 days
of the date of the letter, would subject the plan sponsor
to substantial fines and penalties, not only from the Dept
of Labor but from the IRS as well.
Following is a listing of the most common filing errors
that will generate a letter from the Dept of Labor.
- The Form 5500 Must Be Properly Signed And Dated Make
sure that you have the proper signatures by the Employer
and Plan Administrator and dates on the Form 5500, Form
5500-EZ, and any attached schedules that require a signature
(Schedules B: Actuary; P: Trustee; and Schedule SSA; Plan
Administrator).
- The Form 5550 Must Have The Proper EIN And Plan Number
(PN) It is critical that the Employer Identification Number
(EIN) used to identify the "plan sponsor" be the
same year to year when completing line 2b of the Form 5500
or Form 5500EZ.
- The Form 5500 Filing May Not Be For A Period Greater
Than 12 Months Be certain the time period entered in Part
I of the Form 5500 is not greater than twelve months. If
the plan is not reporting on a calendar year basis, then
input the twelve-month fiscal year period in the spaces
provided.
- Use A Proper Business Code When Completing Line 2d Of
The Form 5500 On Form 5500, Line 2d, be certain to enter
a valid business code that best describes the nature of
the plan sponsor's business. The only business codes that
are valid for use in answering Line 2d are listed in the
Form 5500 filing instructions section marked "Codes
for Principal Business Activity".
- Use The Correct Plan Characteristics Codes On Line 8
Of The Form 5500. On Form 5500, Line 8, you must check box
A to indicate if the plan is providing pension benefits.
You must enter the Plan Characteristics Codes in the space
provided beneath box A. These codes describe the type of
pension benefits provided and other features of the plan.
A list and description of the Plan Characteristics Codes
is in Section 6 of the Instructions for Form 5500.
- Properly Identify The Funding And Benefit Arrangements
On Line 9 Of The Form 5500 Indicate all the proper Funding
and Benefit Arrangements on Form 5500, Lines 9a and 9b.
The "Funding Arrangement" is the method used for
the receipt, holding, investment, and transmittal of plan
assets prior to the time the plan actually provides benefits.
The "Benefit Arrangement" is the method by which
the plan provides benefits to participants. The responses
on Lines 9a and 9b are cross-referenced against information
on Schedules H, I, and/or A as appropriate. Be careful to
attach the appropriate financial or insurance schedule (H,
I, A) that corresponds to the Benefit and Funding Arrangements
you indicate.
- File All The Required Schedules And Attachments With
Your Form 5500 Make sure you are filing all the required
schedules and attachments with your Form 5500. If you check
a box indicating that a schedule is attached, the schedule
must be submitted with your Form 5500.
- Schedule R And Distributions You must prepare Schedule
R only if there are any distributions or rollovers from
the plan. You must enter both the EIN of the distribution
payer and the EIN of the pension plan. Part 3 is only for
money purchase plans that have made single sum distributions.
- File The Appropriate Financial Information Schedule (H
or I) With Your Form 5500. Make sure you file the proper
Financial Information Schedule with your Form 5500. The
Schedule H is for "large plan" filers (generally
plans with 100 or more participants at the beginning of
the plan year). The Schedule I is for "small plan"
filers (generally plans with fewer than 100 participants
at the beginning of the plan year).
- Complete the Participant Benefit Information on the Schedule
SSA Make sure that you list all of the terminated participants
with their vested balances from the prior year that still
have not been paid. Starting with the 2004 filing year,
sponsors are required to list participants, previously outstanding,
who have been subsequently paid.
When your client calls, anxious of a possible Dept of Labor
fine, you can build long term credibility by taking charge
of seeing the correction is made by the preparer. Better still,
review or have an expert review, the Form 5500 before the
client sends the forms into the Dept of Labor and save your
client receiving any letter at all. Calendar year plans Form
5500 EZ and Form 5500 with related schedules are due by July
31, each year.
Lawrence Groves is the Small Business Retirement
Services Director for The Retirement Group. He has helped
thousands of small businesses set up retirement plans. Visit
the site for more information
http://www.solo-k.com.
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