April 2010 © Proskauer ERISA Compliance Overview/18167869_1 1 Form 5500—Are You Ready for the Changes in 2010 Peter J. Marathas, Jr. Compliance Director,

April 2010 © Proskauer ERISA Compliance Overview/18167869_11

Form 5500—Are You Ready for the Changes in 2010

Peter J. Marathas, Jr.Compliance Director, Benefit Advisors Network

Partner, Proskauer Rose LLP

617-526-9704

BAN April 2010


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Form 5500’s

• The Basics

Form 5500 must be filed by the end of the seventh month after the close of the plan year (July 31 for calendar year plans)

Reminder on short plan years, terminated plans, merged plans

Extension of 2½ months if Form 5558 timely filed

Required for all Retirement Plans

Large plans (100+ participants) must include audit each year by an independent qualified public accountant (IQPA)

Small plans may not be required to have audit


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Form 5500’s

• The Basics For Welfare Plans, in general, required if health plan has 100 or more

participants on the first day of the plan year Self funded plans that either use a Veba or accept employee

premium other than through a 125 Plan, file—regardless of size Health care flexible spending account plans, health care plans,

dental plans, long-term disability plans, AD&D plans and group term life plans are required to file Form 5500

Common Misconception: There is NO BLANKET EXEMPTION for tax-exempt entities

125 Only Plans not required to file Form 5500 Dependent care flexible spending account plans funded with only

salary reductions are not ERISA welfare benefit plans and are not required to file Form 5500


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Form 5500’s

• Penalty for Not Filing

Penalties can be imposed by the DOL for any refusal or failure to file a required Form 5500

Penalties available not just for late or un-filed Form 5500s but also for incomplete or otherwise deficient Form 5500s

Criminal penalties are also possible for intentionally not filing

Penalties can be $1,100 per day for each Form 5500 not filed

DFVCP: $10 per day not to exceed the greater of $2,000 per Form 5500 or, in the case of a DFVC submission relating to more than one delinquent Form 5500 filing for the same plan, $4,000 per plan


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Form 5500’s

• New for 2010—Schedule C Changes

Form primarily used to provide information on service provider fees and other compensation

Also used to report information regarding terminated plan accountants or enrolled actuaries

Who must file: large retirement and welfare plans, but not small welfare plans

For the 2009 Plan Year (i.e., forms filed in 2010), many new changes to Schedule C implemented to promote “transparency” with respect to plan fees and expenses

Intent is to provide Plan Sponsors with information necessary to assess reasonableness of compensation paid to service providers

Many have noted that the new rules are confusing and duplicative

Question whether “transparency” is served by confusing and duplicative rules?


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Form 5500’s


Schedule C is completed when service provider received during a plan year, directly or indirectly, $5,000 or more in total “reportable compensation” for services rendered to the plan

Information Reported on Schedule A does not have to be repeated on Schedule C

Fees received and reported on Schedule A must be considered to determine whether $5,000 threshold is met


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Form 5500’s

Example: Broker receives $4,000 in insurance commissions from an insurer in connection with policies purchased by the plan, and $2,000 from the plan for providing consulting services to the plan. The plan’s Form 5500 includes a Schedule A identifying the $4,000 in commissions and a Schedule C for the broker reporting the $2,000 for the consulting services provided to the plan because the two amounts combined exceed the $5,000 Schedule C threshold.

Example: If same broker receives $6,000 in commission from insurance company, all is reported on Schedule A. Nothing is reported for this broker on Schedule C.


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Form 5500’s


Certain Persons Providing Services Are Not Included:

employees of the plan whose only compensation with respect to the plan was less than $25,000 for the plan year;

employees of the plan sponsor or other business entity where the plan sponsor or business entity is reported on Schedule C as a service provider, provided the employee did not separately receive reportable direct or indirect compensation in relation to the plan; and

persons whose only compensation with respect to the plan consists of insurance fees and commissions listed on a Schedule A filed for the plan


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Form 5500’s


Only compensation from the Plan is included;

Services provided by lawyers apparently not included;

Rebates or discounts received by PBMs generally not included


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Form 5500’s

• Electronic Filing

Pre-January 1, 2010, Form 5500 filings could be submitted by paper or electronically using a system called EFAST (ERISA Filing Acceptance System)

EFAST allows filers to submit Form 5500s in one of two computer scannable formats—hand print (generally on a pre-printed IRS form, which could be filed only on paper by mail) or machine print (generated with approved software, which could be filed by mail or transmitted online via modem)

Effective for filings in 2010 to report on plan years beginning on or after January 1, 2009, however, all Form 5500s must be filed electronically


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Form 5500’s

• Electronic Filing

DOL transitioned to all-electronic, web-based system for filing Form 5500s—called EFAST2—on January 1, 2010

With EFAST2, choose between two Form 5500 filing methods:

DOL’s free (“no-frills”) web application (called “IFILE”)

EFAST2-approved third-party software, which integrates with the EFAST2 system

Approved software vendors are listed on the DOL’s webpage at: http://www.efast.dol.gov/software/software.html

EFAST2 can be accessed online at http://www.efast.dol.gov Further information on the electronic filing requirement is also available

beginning on page 5 of the Instructions for Form 5500 (http://www.dol.gov/ebsa/pdf/2009-5500inst.pdf)


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Form 5500’s

• Electronic Filing DOL expects most filers will use third-party software DOL notes IFILE’s limitations include:

Batch filing submissions. IFILE can only transmit single filings; unlike some third-party software approved for EFAST2 use, IFILE cannot be used to transmit batches of filings

Filing preparation. Unlike IFILE, some approved third-party software may integrate with a filer’s system to automatically populate certain information. IFILE also does not contain filing assistance or integrated instructions

File sharing functionality. Some third-party software permits different people to work on a single filing in a coordinated manner. IFILE does not

Minimizing technical issues. For those filers that have traditionally used third-party software, continuing to use software provided by the same software vendor (assuming it has been approved under EFAST2) may offer continuity and a reduced risk of technical issues


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Form 5500’s

• Steps for Electronic Filing: Identify the Filing Signer.

For a single-employer plan with a third-party preparer that transmits the Form 5500, an employee of the Plan Sponsor need only to register as a Filing Signer

A Filing Signer is the person who can sign the Form 5500 on behalf of the Plan Sponsor

A Plan Sponsor can identify multiple individuals who are Form 5500 Signers


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Form 5500’s

• Steps for Electronic Filing: Register for Filing Credentials.

Signers must register with EFAST2 to receive appropriate credentials in order to sign the Form 5500

Required even if a third-party prepares Form 5500

Signers register as a Filing Signer at http://www.efast.dol.gov


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Form 5500’s

• Steps for Electronic Filing: Six Steps to Process:

1. Read and accept the privacy statement;

2. Provide contact information and select user type(s) – in most cases this is a Filing Signer;

3. Select a challenge question and answer;

4. Verify registration information;

5. Receive a credentials email notification; and

6. Retrieve and activate credentials


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Form 5500’s

• Steps for Electronic Filing: Email with a link to retrieve User ID and PIN are sent

The User ID and PIN are required to sign the Form 5500

Return to EFAST2 and acknowledge receipt of credentials and establish a password

Each Filing Signer must sign in and follow these steps

Credentials may not be shared

Credentials are used for both Welfare Plan and Retirement Plan filing—if same person is signing both;

For screen shots to guide you through this process, see the EFAST2 Guide to Filers & Service Providers http://www.efast.dol.gov/fip/pubs/EFAST2_Guide_Filers_Service_Providers.pdf


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Form 5500’s

• Steps for Electronic Filing With EFAST2:

Your Third Party preparer will prepare your Form 5500 and load onto EFAST2

You should receive an e-mail notification that the Form 5500 has been loaded

The e-mail will direct you to a secure Web site, where you can download and review your Form 5500 for accuracy

Once the filing is reviewed, transmit the Form 5500 electronically by clicking the button and electronically signing the Form 5500

Your User ID and PIN together serve as your electronic signature


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Form 5500’s

• Steps for Electronic Filing With IFILE:

DOL Guidance for IFILE is available at: http://www.efast.dol.gov/fip/pubs/EFAST2_IFILE_User_Guide.pdf

Some preparers may create your Form 5500 using EFAST2 and then have you file with IFILE

You should make immediate inquiry as to whether they will use this approach and, if so, download DOL Publication and begin to understand requirements


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Form 5500’s

• Steps for Electronic Filing With IFILE• Registration is at the EFAST2 site• Designate Filing Author:

Initiates filing and responsibility for submitting filing Has the ability to initiate filings, populate data, upload/import

filings/components, download/export filings/components, and ultimately submit a filing

Signature authority is separate

• Designate Filing Signer: As previously discussed

• Designate Schedule Author: Person who has been requested by a Filing Author to complete one of the

Schedules for a filing This user type may not initiate or submit a filing


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Form 5500’s

• Form is Created and Reviewed Filing is completed with a touch of the button

• Amendments may be affected using filing system

• Attachments are loaded electronically, including audited financials and accountant’s opinion (PDF Only)

• Extensions are done electronically

• DFVCP is now done electronically

• Be sure to print and keep a copy of all materials


Form 5500—Are You Ready for the Changes in 2010

Peter J. Marathas, Jr.Proskauer Rose LLP

617-526-9704

[email protected]

Documents

April 2010 © Proskauer ERISA Compliance Overview/18167869_1 1 Form 5500—Are You Ready for the Changes in 2010 Peter J. Marathas, Jr. Compliance Director,