Compliance August 1, 2016

IRS Clarification Eases Missing Participant Form 5500 Concerns

As long as plan sponsors make (and document) a reasonable effort to locate missing participants and benefices, they can leave alone Lines 4I of the Schedule H and I of the Form 5500 and 10f of the Form 5500-SF.  
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Based on comments received in response to a Paperwork Reduction Act notice regarding the 2016 Form 5500 and Form 5500-SF, the Internal Revenue Service (IRS) announced that filers who have made a concerted effort to locate missing participants will face less of a  reporting burden associated with the missing individuals.

Specifically, plan sponsors henceforth, in the absence of other guidance, “do not need to report on Lines 4I of the Schedule H and I to the Form 5500 and 10f of the Form 5500-SF unpaid required minimum distribution (RMD) amounts for participants who have retired or separated from service, or their beneficiaries, who cannot be located after reasonable efforts or where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period.”

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The announcement will surely be welcome news to some plan sponsors, who have increasingly cited the issue of missing participants and beneficiaries as a top concern to the smooth functioning of their benefit programs. Prior to the announcement, in fact, some sponsors complained the IRS had made it less than abundantly clear how to deal with these sections of the Form 5500.

As IRS explains, Lines 4l of Schedules H and I of the Form 5500, Annual Return/Report of Employee Benefit Plan, and line 10f of Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, ask a simple-seeming question: “Has the plan failed to provide any benefit when due under the plan?” 

“This question was added to Schedules H and I of the Form 5500 and Form 5500-SF as part of the forms revisions effective for the 2009 plan year,” IRS says. “The instructions did not include examples of what constituted a reportable failure to provide any benefit when due under the plan. The IRS clarified the instructions in connection with the 2015 Form 5500 and Form 5500-SF to explain that a reportable failure included unpaid minimum required distributions to 5% owners who have attained 70½, and non-5% owners who have attained 70½ and have retired or separated from service.”

Important to note, the new guidance does not actually change plan sponsors’ duty to search out missing participants and is instead “limited to completing the identified annual return/report line items.” Plan administrators and employers should review their plan documents for written required procedures on locating missing participants, IRS warns.

“Also, although the Department of Labor’s Field Assistance Bulletin (FAB) 2014-01 is specifically applicable to terminated defined contribution plans, employers and plan administrators of ongoing plans may want to consider periodically using one or more of the search methods described in the FAB in connection with making reasonable efforts to locate RMD-eligible missing participants,” IRS concludes.

Additional information can be found at the IRS Form 5500 Corner. 

Data & Research August 1, 2016

Nearly All Sponsors Would Recommend Their Adviser to Another Employer

Only 10% would not make an endorsement.
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Sponsors are so satisfied with their retirement plan advisers that 88% would recommend them to another employer, Massachusetts Mutual Life Insurance Co. found in a survey of 565 employers. 

Thirty-seven percent said that they would be “very likely” to do so. Only 10% thought that they would not be inclined to make a recommendation.

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While it’s still true that advisers are responding to more formal requests for proposal (RFPs) than ever, still a majority (58%) of employers find advisers through referrals. While only 10% find advisers through online searches, of this group, 72% look for advisers who work with companies similar to theirs, 47% look for customer testimonials, 43% gravitate to an effective website, 41% seek out a good value proposition, 40% look for fee transparency and 29% want an adviser close to their headquarters.

Ninety-three percent said the costs and benefits of working with an adviser are favorable, and 94% are satisfied with their adviser overall.

Not all the findings appear so positive from advisers’ perspective, however, as more than one third (35%) of clients have switched their adviser somewhat recently. In fact, 41% of this group switched because their adviser was “simply bad,” another 17% switched to seek out lower fees, and 15% cited a change in their company’s management vision or ownership. Other reasons for switching advisers include the 11% wanting better overall service, 10% saying their favored adviser had left the practice, 7% wanting better investments, 6% citing poor returns, and 4% seeking out more robust fiduciary support.

“Overwhelmingly, retirement plan sponsors are pleased with the support they receive from their financial adviser and are more than willing to tell other employers,” says Tom Foster, national spokesperson and practice management leader for MassMutual’s retirement plan services. “It’s a great opportunity for advisers who want to build their retirement plan practices. The retirement plan business is all about solving problems. Advisers who are attentive and responsive, keep up with the regulatory environment, and work closely with sponsors to help their employees become retirement ready have tremendous opportunities to grow in the retirement plan marketplace.”

Greenwald & Associates conducted the survey in August and September last year for MassMutual. The complete findings can be downloaded here.

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