Compliance September 15, 2015

IRS Clarifies Rules for Hardship-Related eFiling Waivers

The IRS published procedures for plan sponsors to request a waiver of the electronic filing requirements for Form 8955-SSA and Form 5500-EZ.
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The Internal Revenue Service (IRS) has set forth Revenue Procedure 2015-47, which supplies guidance for administrators of qualified retirement plans seeking an exemption from requirements to file electronically certain annual forms. The new guidance helps clarify how plans can properly request a waiver of the electronic filing requirement due to economic hardship.

The forms impacted by the revenue procedure are Form 8955-SSA, “Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits,” and Form 5500-EZ, “Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan.” Under the terms of Revenue Procedure 2015-47, certain plan sponsors will be able to continue to file paper versions of these forms, despite other recent rulemaking requiring electronic filing. 

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But because the Department of the Treasury and the IRS believe that electronic filing will not impose significant burdens on the taxpayers covered by the regulations, the IRS Commissioner “anticipates granting waivers of the electronic filing requirement only in exceptional cases.”

By way of background, Section 6011(e) of the Internal Revenue Code (IRC) authorizes the IRS to issue regulations that require an entity to file returns on “magnetic media,” so long as the entity is required to file at least 250 returns during the calendar year. The term magnetic media includes electronic filing via the Internet, as well as other forms specifically permitted under applicable regulations, revenue procedures, publications, forms, instructions, or other guidance from the IRS. 

During September 2014, the Department of the Treasury and the IRS issued final regulations to require certain plan administrators to file electronically Form 8955-SSA registration statements and Form 5500 series returns. Form 5500 series returns include Form 5500, Annual Return/Report of Employee Benefit Plan, Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, and Form 5500-EZ. Under the electronic filing regulations, a Form 8955-SSA registration statement must be filed electronically if the plan administrator is required to file at least 250 returns during the calendar year that includes the first day of the plan year.

Under a related section of the electronic filing regulations, a Form 5500 series return must be filed electronically if the plan administrator and the employer maintaining the plan are, in the aggregate, required to file at least 250 returns during the calendar year that includes the first day of the plan year. These electronic filing regulations provide that if a filer is required to file electronically a Form 8955-SSA registration statement or a Form 5500 series return and fails to do so, the filer is deemed to have failed to file the registration statement or the return, respectively.

The electronic filing regulations further provide that the Commissioner of the IRS may waive the electronic filing requirement for a given plan in cases of undue economic hardship. According to the IRS, the principal factor in determining economic hardship will be the amount, if any, by which the cost of filing the registration statement or return electronically exceeds the cost of filing the registration statement or return on paper or other media.

NEXT: Other background requirements 

The earlier regulations also provide that a request for a waiver must be made in accordance with published guidance, and that the waiver will specify the type of filing and the period to which it applies. The waiver is also subject to any terms and conditions regarding the method of filing that may be prescribed by the IRS Commissioner.

The electronic filing requirement under § 301.6057-3 of the electronic filing regulations applies to Form 8955-SSA registration statements required to be filed for plan years that begin on or after January 1, 2014, but only for filings with a filing deadline (not taking into account extensions) on or after July 31, 2015. Filers of Form 8955-SSA registration statements due on July 31, 2015, would be eligible for an automatic extension until October 15, 2015, if they filed Form 5558, Application for Extension of Time to File Certain Employee Plan Returns. The electronic filing requirement under § 301.6058-2 of the electronic filing regulations applies to Form 5500 series returns required to be filed for plan years that begin on or after January 1, 2015, but only for filings with a filing deadline (not taking into account extensions) after December 31, 2015.

Form 8955-SSA registration statements that are filed electronically are filed using the Filing Information Returns Electronically (FIRE) system. Form 5500 series returns that are required to be filed electronically are generally filed under the Department of Labor’s ERISA Filing Acceptance System (EFAST2). However, because Form 5500-EZ returns are paper-only returns that are filed with the IRS, filers of Form 5500-EZ returns that are required to file electronically must file Form 5500-SF returns using EFAST2 in lieu of the Form 5500-EZ.

NEXT: Waivers have limited scope

The IRS stresses that the new guidance under Revenue Procedure 2015-47 does not provide hardship waiver procedures for any electronic filing requirement for a form that a filer is already required to file electronically, such as Form 5500 and Form 5500-SF (which are required to be filed electronically through EFAST2 under a Department of Labor rule).

Accordingly, the waiver procedures provided for in the new revenue procedure apply only to Form 8955-SSA and Form 5500-EZ filings. Also, as previously announced in the preamble to the electronic filing regulations, the IRS anticipates adding items on the Form 5500 and Form 5500-SF relating solely to Code requirements and intends to provide an optional paper-only form containing those Code-related items for use by filers that file fewer than 250 returns during the calendar year.

Filers that are required to electronically file Form 5500 series returns using EFAST2 and that file at least 250 returns during the calendar year would be required to answer these IRS-only questions electronically using EFAST2 (even though the Department of Labor rule requiring electronic filing does not apply to these IRS-only questions). The Department of the Treasury and the IRS do not believe that answering five these IRS-only questions electronically would impose any significant burdens because these filers are already required to electronically file a Form 5500 or Form 5500-SF return using EFAST2. Accordingly, a waiver of the electronic filing requirement will not be granted with respect to these questions.

With these limitations in mind, the IRS will approve or deny a request for a waiver of the electronic filing requirement for Form 8955-SSA or Form 5500-EZ based on each filer’s particular facts and circumstances. In the case of a waiver request relating to Form 8955-SSA, the filer must be the plan administrator required to file Form 8955-SSA under § 6057(a). In the case of a waiver request relating to Form 5500-EZ, the filer must be either the plan administrator or the employer that maintains the plan as provided in § 6058(a).

In determining whether to approve or deny a request, the IRS will consider the filer’s ability to file timely the registration statement or return electronically without incurring an undue economic hardship. The specific criteria are described at length in the text of Revenue Procedure 2015-47.

Client Service September 15, 2015

Do Retirement Plan Advisers Have a Duty to ‘Rat?’

With more advisers taking on a fiduciary role, they should know when to speak up, or walk away, before a retirement plan sponsor gets them in trouble.
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What can plan advisers do when they learn a client is violating an Employee Retirement Income Security Act (ERISA) duty? If efforts to get the client to do the right thing fail, at what point does the adviser have a duty to report the client, or at what point should the adviser walk away from the relationship?

Adam Pozek, a partner at DWC ERISA Consultants in Salem, New Hampshire, says, “It varies widely depending on what type of infraction there is. No one wants the reputation of turning a client in when something small happens, but in a situation where there is outright theft, most would agree the adviser has a duty to report it.”

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Pozek also says it hinges to some degree on whether the adviser is acting in a fiduciary capacity. If not, in general, the adviser has less of a responsibility legally. However, depending on what titles they hold, they may have ethical or professional standards to consider. “It’s a judgment call for advisers who are not fiduciaries,” he states.

Scott Liggett, JD, director of ERISA compliance at Lawing Financial, an independent, registered investment adviser (RIA), in Overland Park, Kansas, says there is nothing concrete about such rules for advisers, but in the qualified plan space, one has to look to fiduciary rules under ERISA 3(21) or 3(38). “This is when fiduciary rules start kicking in. An adviser can be liable for not making reasonable efforts to remedy a breach of which they become aware,” he says. “As the trend is for more and more advisers to serve as ERISA fiduciaries, that will trigger co-fiduciary rules.” However, he adds that it depends on facts and circumstances.

NEXT: Look at intent

Pozek suggests advisers look at plan sponsor intent when deciding how to handle misbehavior. “If the plan sponsor knows it is doing wrong and just doesn’t care, the situation escalates to where reporting is required,” he says. “If the plan sponsor doesn’t know what it is doing is wrong, the adviser can make them aware it is an illegal fiduciary breach and help them fix it.”

Liggett believes advisers should get to know their plan sponsor clients’ intentions up front. “When a plan sponsor wants to engage your services, you need to do a due diligence on the plan sponsor,” he says. “Find out what level of engagement with you the plan sponsor wants and what the operations history of the plan is. You’ll want copies of previous audits and to know things like, has the sponsor had a preponderance of compliance testing issues?”

Liggett adds that if an adviser is going to be a fiduciary, he or she needs to ask questions ahead of time to get a feel for the plan sponsor’s thoughts about fiduciary training. “The adviser is the expert, the plan sponsor is not, see how receptive the client is to training and education.”

Education is the first step when an adviser becomes aware of a fiduciary breach, Pozek says. “If the plan sponsor is willing to fix the problem, I would give them a deadline to get it fixed,” he states. “As a consulting firm, if there is an ongoing infraction and no action on the plan sponsor’s part to fix it, we resign,” Pozek says. “If an adviser can show proof he or she took steps to try to get the sponsor to fix the error, and after the plan sponsor refused to do so, the adviser resigned, hopefully it will lower the adviser’s liability for the breach.”

Liggett adds that, if there are egregious violations, the adviser should report them. “If an engaged adviser gets a call from a retirement plan participant who says, ‘My statement is not showing my deferrals going into my account,’ the adviser cannot turn a blind eye; that warrants, at a minimum, asking questions,” he says.

Even if there are no fiduciary breaches, if an adviser has come up with workable processes for a plan sponsor to follow to keep them out of trouble, and the plan sponsor refuses to follow them, the adviser may want to withdraw, Liggett adds. “The adviser needs to weigh whether an ongoing relationship is worth the headache of having to look over the plan sponsor’s shoulder constantly, or if the plan sponsor expects the adviser to turn a blind eye.”

NEXT: How much to nudge

Pozek says in a typical advisory agreement, an adviser isn’t given the responsibility to make sure the plan sponsor follows all ERISA rules. For example, an adviser responsible for helping plan sponsors with fund selection wouldn’t be responsible for making sure sponsors deposit employee deferrals in a timely manner. On the other hand, some advisers’ service offering is based on ongoing counseling rather than fund selection. “It depends on the level of engagement of the adviser,” he says.

While it doesn’t hurt for advisers to send out reminders to plan sponsors—for example, for the Form 5500 filing deadline—Pozek notes that usually it is up to the recordkeeper or third-party administrator to help plan sponsors with compliance. He says the key is coordination; advisers, sponsors and providers can have a call to discuss who is responsible for what. “This is where an adviser can show value as a coordinator. And, to the extent the adviser does that and follows up with parties to make sure things are moving in the right direction, and keeps documentation of all that, it will protect the adviser from adverse actions,” he says.        

Liggett agrees that a unified front, getting the recordkeeper or TPA to confirm the adviser’s information about why the plan sponsor’s conduct will cause trouble, can help. Also, telling plan sponsors someone will be responsible for participant losses, turning it into monetary terms, will get their attention, he adds.

Some advisers take on the role of reminding plan sponsors about compliance, Liggett says. “We do. It is helpful to send reminders or nudges, for example about the timing of testing and sending census data to the recordkeeper on time, or submitting Form 5500 on time so they won’t be subject to a penalty. We are the experts, plan sponsors are not,” he states, adding that “In particular, when there is a change to your contact at the plan sponsor, you can’t always assume the person is well-trained.”

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