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DOL Proposal Seeks to Modernize Form 5500
Significant changes could be in store for Form 5500,
the Department of Labor, Internal Revenue Service, and
Pension Benefit Guaranty Corporation announced in
July 2016. Form 5500 is the series of forms and schedules
that employers are required to file annually for employee
benefit plans covered under ERISA, most notably 401(k),
pension, and health and welfare plans. The proposed
changes seek to modernize several aspects of Form 5500
by requiring enhanced reporting on financials, as well as
the introduction of several new questions designed to
improve transparency and reliability.
“The 5500 is in serious need of updates to continue to
keep pace with changing conditions in the employee
benefit plan and financial market sectors,” said Phyllis
C. Borzi, assistant secretary for the DOL’s Employee
Benefits Security Administration, in a statement
announcing the proposed changes. Because
Form 5500 is subject to public inspection, expanded
data points would serve to assist government
agencies with research, policymaking, and oversight.
For employers that offer workplace retirement
plans, the following proposed changes will be of
particular interest:
• New compliance questions pertaining to default
investments, catch-up contributions, employer
contributions, and distributions
• A narrowed focus on reporting of plan- and
participant-level fees and expenses via
Schedule C (Service Provider Information), including
a requirement to file a Schedule C for each provider
(Currently, all providers are listed on one Schedule C.)
• The expansion of questions pertaining to plan
terminations and plan asset transfers
• Modifications to asset entries on Schedule H
(Financial Information), including more
detailed financial information for income and
expenses entries
The evolution of Form 5500 will undoubtedly improve
reporting quality and provide greater transparency
of investments and financial transactions. At the
same time, it will add another layer of accountability
for retirement plan sponsors, who will ultimately be
responsible for complying with the proposed changes.
More information inherently leads to more scrutiny,
particularly regarding the appropriation of fees and
expenses, so it is imperative for plan sponsors to fully
understand their plans’ features and investments and
to ensure that they are in compliance with all
Form 5500 reporting requirements.
Top 10 Compl i a nce Pi t f a l l s : L e ssons L earned
Retirement plan sponsors are tasked with complex
fiduciary and administrative responsibilities, with
pitfalls around every corner. When compliance tasks
fall through the cracks, the IRS, through the Voluntary
Correction Program (VCP), provides a way for plan
sponsors to correct mistakes and preserve their plans’
tax-favored status.
Let’s take a look at the Top 10 Failures discovered
via the VCP, along with tips to help you avoid these
mistakes and tighten up your firm’s compliance
practices in 2017.
1) Failure to amend the plan based on tax law
changes by the end of the period required by
the law. Legislative changes sometimes require a
plan document amendment; check with your TPA
or service provider to be sure your plan document
reflects recent changes in the law.
2) Failure to follow the plan’s definition of
compensation for determining contributions.
The integrity of nondiscrimination tests relies on
accurate compensation reporting. Be sure your
testing census corresponds to your plan document’s
definition of compensation and that it incorporates
any excluded elements of compensation, such as
bonuses and overtime.
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3) Failure to include eligible employees in the
plan (or to exclude ineligible employees). When
eligible employees are excluded from the plan,
they may not receive contributions to which they are
entitled. Conversely, when ineligible employees are
included in the plan, they may receive contributions
that they shouldn’t receive. Double-check that new
employees meet eligibility requirements and that hire
dates are accurate.
4) Failure to satisfy plan loan provisions. Coordinate
your payroll remittances with your TPA or service
provider, and periodically audit loan payment history
to ensure accuracy.
5) Impermissible in-service withdrawals. If your plan
offers an in-service withdrawal or hardship provision,
be sure to verify hardship claims through proper
6) Employer eligibility failure. This failure occurs
when an employer adopts a plan that it legally is not
permitted to adopt. Ask your TPA or service provider
to verify that your plan has been established under
proper guidelines.
7) Failure to satisfy IRC 401(a)(9) minimum
distribution rules. Required minimum distributions
(RMDs) come into play when an employee attains
age 70½. Run periodic reports to put upcoming RMDs
on your administrative radar.
8) Failure to pass the ADP/ACP nondiscrimination
tests under IRC 401(k) and 401(m). Some
nondiscrimination test failures occur because of
inaccurate census data. Do a thorough review of
census data, and ask your TPA to perform a midyear
test to help uncover any inaccuracies that may affect
the test results.
9) Failure to properly provide the minimum
top-heavy benefit or contribution under IRC 416 to
non-key employees. Failed top-heavy tests require
corrective contributions in the form of minimum
10) Failure to satisfy the limits of IRC 415.
Exceeding the aggregate contribution limit
($54,000 in 2017, or $60,000 for employees
age 50 and older) is a compliance violation. Ask
your payroll provider if it has safeguards in place to
cease contributions once the limit is reached. Review
contribution reports periodically to ensure that
employees do not exceed the limit.
IRS Announces 2017 Pension Plan Limi tat ions
In October 2016, the IRS released Notice 2016-62,
announcing cost-of-living adjustments that affect
contribution limits for retirement plans in 2017.
Though not exhaustive, the list below includes key
changes that plan sponsors should be aware of,
as well as some limitations that remain unchanged
from 2016:
• The aggregate contribution limit for defined
contribution plans is increasing from $53,000
to $54,000.
• The annual compensation limit used to
calculate contributions is increasing from
$265,000 to $270,000.
• The limitation on the annual benefit under a
defined benefit plan is increasing from $210,000
to $215,000.
• The dollar limit used in the definition of
“key employee” in a top-heavy retirement plan is
increasing from $170,000 to $175,000.
• The dollar limit used in the definition of “highly
compensated employee” remains unchanged
at $120,000.
• The elective deferral limit remains unchanged
at $18,000.
• The catch-up contribution limit for employees
age 50 and older remains unchanged at $6,000.
We Can Help
Our firm is ready to provide ideas, guidance, and foresight to help prepare your business and your employees
for a successful 2017. If you would like to review proposed Form 5500 changes, administrative best practices, or
any aspect of your retirement plan, we’re here to assist you.
Commonwealth Financial Network® does not provide legal or tax advice. Please contact your legal or tax advisor for advice
on your specific situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Authored by the Retirement Consulting Services team at Commonwealth Financial Network.
© 2016 Commonwealth Financial Network®

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