Compliance June 20, 2011

The Wait is Over for 2010 Form 5500 EZ

Those who have been waiting for the new Form 5500 EZ need wait no longer.
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As for what’s new, the Internal Revenue Service (IRS) notes that the Pension Protection Act of 2006 established rules for a new type of pension plan, an “eligible combined plan,” effective for plan years beginning after December 31, 2009.  Those plans consist of a defined benefit plan and a defined contribution plan that includes a qualified cash or deferred arrangement under section 401(k), with the assets of the two plans held in a single trust, but clearly identified and allocated between plans.

To be eligible for the combined plan design, the IRS says employers must have employed an average of at least 2 but not more than 500 employees on each business day during the calendar year preceding the plan year as of which the eligible combined plan is established. An employer must have at least 2 employees on the first day of the plan year, going on to note that, “because an eligible combined plan includes both a defined benefit plan and a defined contribution plan, the Form 5500-EZ filed for the plan must include all the information that would be required for either a defined benefit plan or a defined contribution plan.”

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To reduce the possibility of correspondence and penalties, the IRS reminds filers:

  • Use the online, fillable 2010 Form 5500-EZ on the IRS website. Complete and download the form to your computer to print and sign before mailing.
  • Or, use the official printed paper Form 5500-EZ obtained from the IRS. Complete the form by hand using only black or blue ink. Be sure to enter your information in the specific line fields provided, sign, and date the form before mailing.
  • Or, use approved software, if available.
  • Do not use felt tip pens or other writing instruments that can cause signatures or data to bleed through to the other side of the paper. One-sided documents should have no markings on the blank side.
  • Paper should be clean without glue or other sticky substances.
  • Do not submit extraneous information such as arrows or notes on the form.

The IRS also notes that a one-participant plan that is eligible to file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, may elect to file Form 5500-SF electronically with the computerized ERISA Filing Acceptance System (EFAST2) rather than filing a Form 5500-EZ on paper with the IRS.

Questions regarding the form can be addressed via the IRS Help Line at 1-877-829-5500, Monday through Friday.

The form is available at http://www.irs.gov/pub/irs-pdf/f5500ez.pdf

More information is available at http://www.irs.gov/instructions/i5500ez/ar01.html

IMHO June 20, 2011

IMHO: All for One?

The underlying theme of last week’s PLANSPONSOR National Conference was “measuring up."
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That was a reference not only to the need to measure the performance and outputs of a retirement plan’s designs, but also to the opportunity to increase and enhance it in the process. 

 

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Of late, fees are very much on everyone’s mind, as we all prepare for a new series of plan, and ultimately, participant, disclosures.  Just ahead of those disclosures, the industry has launched a new generation of plan fee benchmarking services.  Each looks at different things, each has its own set of weightings and assumptions, and each draws from a different source.   

But for my money, here are 10 things you should know about any service that purports to help you benchmark your plan: 

1. What is the source of the database that serves as a point of comparison? 

2. Is the database itself large enough to be relevant?  Does it include relevant points of comparison with your program in terms of plan size, industry, and/or geographic location? 

3. How old is the data on which comparisons are made? 

4. Is the data on which comparisons are made accurate? 

5. Are the comparisons valid?  Do they offer an apples-to-apples comparison?  

6. What assumptions are incorporated in the results? 

7. How are the results of the comparison scored? 

8. What are the credentials of the firm/principals behind the service and/or methodology? 

9. Is the benchmark itself relevant to your needs?  Does the comparison help you improve your program? 

10. Is the fee paid for the benchmarking service reasonable, and in the best interests of participants? 

      

There are, admittedly, any number of measures of success for a retirement plan—and while some may be “better” than others, and some surely easier to establish, in my experience, the mere process of measuring brings benefits.   

That said, there was a moment at last week’s conference where one of our speakers asked a telling question: not if attendees benchmarked their programs (a surprising number were doing so), nor if they were benchmarking against a variety of criteria (most of those in attendance had moved well beyond the standard of “participation rate” as a metric).   

No, the question that gave me pause—as well as a good number of the attendees—was, If the individual members of your retirement plan committee were asked “What do you benchmark your plan against?” what would they say? 

Because, if you don’t agree on that answer, the rest of the questions may not matter. 

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Editor’s Note: You may find useful the cover story of the June issue of PLANSPONSOR, which deals with this new generation of fee benchmarking services, at http://www.plansponsor.com/MagazineArticle.aspx?id=6442479915 

 

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