EBSA issues additional guidance on 2009 Form 5500 Schedule C

The DOL announced the issuance of additional guidance on Schedule C reporting for 2009 Form 5500:

Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today released additional guidance to help plan administrators and service providers comply with the expanded requirements for reporting service provider fee and compensation information on the Form 5500 Annual Returns/Reports. The expanded requirements apply for plan years beginning on or after January 1, 2009.

The new guidance is provided in the form of 25 frequently asked questions (FAQs) on the new Schedule C requirements. Some of the issues covered in the new FAQs include reporting of:

• Gifts, entertainment and other non-monetary compensation
• Compensation to hedge fund investment managers
• "Look-through" investment funds
• Mutual fund redemption fees
• ERISA fee recapture accounts

Today's FAQs also provide clarification regarding the 2009 plan year transition relief for service providers by explaining that the transition relief also covers plan administrators and Form 5500 preparers who rely on those service providers for information needed to complete the Schedule C. The details about the transition relief were explained in an earlier set of FAQs released in July 2008.

The new FAQs are available on EBSA's Web site at www.dol.gov/ebsa. Questions for the FAQs were developed based on feedback from the employee benefit community. The new FAQs supplement previous guidance FAQs on the Form 5500 Schedule C published in July 2008.

Supplemental FAQs About The 2009 Schedule C

1. What is the purpose of this FAQ guidance?
   
2. Are promotional gifts of little intrinsic value such as a coffee mug, calendar, greeting cards, plaques, certificates, trophies or similar items intended solely for the purpose of presentation and displaying a company logo, reportable Schedule C indirect compensation to the recipient?
   
3. Are all free business meals and entertainment received by persons who have business relationships with ERISA plans indirect compensation to the recipient for purposes of Schedule C?
   
4. An entity that provides services to employee benefit plans conducts educational conferences designed to educate and explain employee benefit issues and products at no cost to employee pension or welfare plan personnel (e.g., plan sponsor's human resources staff and finance personnel). In holding the conference, the entity provides conference rooms, speakers, audio-visual equipment, and refreshments during conference breaks, meals, travel, and lodging. Do all of those expenses have to be reported as non-monetary compensation?
   
5. In the context of a plan's investment in a "look-through" investment fund is Schedule C reporting required for fees received by persons at the lower tier funds?
   
6. For purposes of reporting indirect compensation on Schedule C, must a limited partnership hedge fund that is not holding plan assets pursuant to the "less than 25% benefit plan investor exception" under section 3(42) of ERISA be treated as an investment fund?
   
7. Can mutual fund 12b-1 fees, sub-transfer agent fees, and shareholder servicing fees received by a retirement plan record keeper be classified as eligible indirect compensation for purposes of the Schedule C alternative reporting option, regardless of whether such fees were received from a mutual fund agent or directly from a mutual fund?
   
8. Revenue sharing payments often travel through the hands of several different service providers before getting to their ultimate intended recipient in a "chain" of plan service providers. Does only the ultimate recipient of the compensation need to be identified as having received the compensation?
   
9. Are costs and expenses incurred by an insurance company in connection with a general account investment contract that promises a guaranteed rate of return reportable compensation for purposes of the Schedule C?
   
10. The July 2008 guidance in FAQ 40 provides limited transition relief where a service provider makes reasonable, good faith efforts to develop systems to track information regarding its reportable indirect compensation in a timely fashion but, despite such efforts, is unable to collect the necessary information for the 2009 plan year reports. Will the Department reject the Form 5500 or impose penalties if the Schedule C does not include information that was not provided to the plan administrator or the plan's Form 5500 preparer by a service provider that gives the plan administrator the statement described in Q40?
    
11. Are "contingent deferred sales charges," market value adjustments for annuity contracts, or surrender/termination charges reportable compensation and if so, are they to be reported as direct or indirect compensation?
    
12. Some mutual funds have imposed short-term trading fees as a result of SEC Rule 22c-2. These are commonly known in the industry as "redemption fees." Other investment products (collective trust funds, separate accounts, etc.) may impose similar fees to curb short-term trading. Such fees are generally assessed when a participant transfers out of an investment fund within a certain timeframe (often 30-60 days) after investment in the fund. The fees flow back into the fund, trust, or account through a reporting and remittance process developed between the record keeper or intermediary and the fund or investment company. Should these fees be reported as redemption fees using code 57 on Schedule C as direct compensation to the fund company?
    
13. Record keepers may receive revenue sharing payments from fund companies in the form of shareholder servicing fees. In some cases, the plan and the record keeper may agree to an "ERISA fee recapture account" where the revenue sharing exceeds a fee level negotiated between the record keeper and the plan sponsor. How are the following two common approaches treated for Schedule C purposes?
    
14. any recordkeeping service arrangements apply some portion of a shareholder servicing fee charged by an investment fund in which its client plans invest toward the payment of the record keeper's fees. In cases where such revenue sharing payments from the investment fund do not cover the full amount of the record keeper fee, an additional direct payment is made by the plan to the record keeper to cover the total recordkeeping fee. Under such circumstances, can part of the recordkeeping fee be reported as indirect compensation and part direct compensation for purposes of Schedule C reporting?
    
15. If plan service providers or plan administrators make a good faith attempt to classify their services and the fees they receive using the codes in the Schedule C instructions, will the Department reject Form 5500s in 2009 due to inadvertent misclassifications?
    
16. Provider A has an "alliance" with Provider B. Provider B has developed a program to assist participants in fund selection. Provider A pays Provider B a flat fee of $20,000 to have access to the Provider B program, regardless of whether any of Provider A's plan clients use it. Plan Z pays a direct fee to Provider A of $5,000 that allows Plan Z participants to access Provider B's service. Provider A shares $1,000 with Provider B.
    
17. By what date must the disclosure materials necessary to satisfy the "written disclosures" requirement for treating indirect compensation as eligible indirect compensation be presented to the plan administrator?
    
18. If it is difficult to ascertain the Employer Identification Number (EIN) for some service providers that are part of a group of affiliated companies, would it be sufficient to provide the EIN of a "parent" company?
    
19. May reporting of fees and expenses for plans with assets invested in a Master Trust Investment Account (MTIA) be reported on the Form 5500 filing for the MTIA rather than the Form 5500 filing for each plan involved?
    
20. If a trade confirm is sent to the plan or to the participant with each participant directed trade made through a 401(k) plan brokerage window, does that meet the requirements of the eligible indirect compensation rule that requires disclosure to the plan administrator?
    
21. If a broker identifies, for each plan with respect to which it receives 12b-1 fees, shareholder service fees, subtransfer agency fees charged against an investment fund and reflected in the value of the plan's investment, the name of each fund and range of payments it receives: (e.g. "from all these funds we get between 25 and 45 basis points and/or up to 15 dollars per position") will that satisfy the disclosure requirements for the eligible indirect compensation alternative reporting option?
    
22. If an investment advisor has a standard disclosure on soft dollar compensation that meets the requirements of the securities laws, but would not meet the requirements of the alternative reporting option for eligible indirect compensation because it does not provide estimates or descriptions of eligibility criteria or the names of the brokers paying the soft dollar compensation, do additional disclosures need to be provided?
    
23. Are group health plans and other welfare benefit plans that are required to file a Schedule C subject to the indirect compensation reporting requirements?
    
24. In the health plan context, and specifically with regard to health care claims, what fees will be considered as charged on a per transaction basis?
    
25. Assume that a plan sponsor pays all direct expenses relating to the administration and funding of benefits of an unfunded, self-insured welfare plan, such as the third-party claims administration expenses under an employer-pay-all disability plan. No plan assets are used to pay any direct expenses, nor are plan assets used to reimburse the plan sponsor for the payment of direct expenses. Would revenue sharing payments among the plan's service providers be required to be reported on a Schedule C?

Related Links:

• News Release
• EBSA issues additional guidance on 2009 Form 5500 Schedule C
  
• DOL Issues 40-FAQs About IRS Form 5500 – Schedule C

Employee Plans News - Special Edition, October 2009

The IRS published Employee Plans News - Special Edition, October 2009:

Final Funding Regulations and Benefit Restriction Notices for Single Employer Defined Benefit Plans; Phone Forum on Retirement Plan Distributions - October 28, 2009

This Special Edition covers the final regulations on the measurement of assets and liabilities for pension funding, benefit restrictions for underfunded pension plans, benefit restriction notices and more.

IRS Notice 2009-82 – Guidance on 2009 Required Minimum Distributions

Part III --- Administrative, Miscellaneous, and Procedural

IRS Notice 2009-82 – Guidance on 2009 Required Minimum Distributions

Guidance on 2009 required minimum distributions. This notice provides guidance and transition relief relating to the waiver of 2009 required minimum distributions, described in section 401(a)(9) of the Code, from certain plans under the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"), P.L. 110-458. The notice also provides two sample plan amendments that give recipients a choice as to whether to receive waived required minimum distributions and certain related payments and that specify the application of the direct rollover rules to the distributions. The sample amendments can be used by plan sponsors that are uncertain as to the treatment under plan terms of waived required minimum distributions and certain related payments or that otherwise desire to give recipients a choice as to whether to receive such distributions. Notice 2007-7 modified.

Notice 2009-82 explains that those who have received a 2009 required minimum distribution have until the later of Nov. 30 2009, or 60 days after the date the distribution was received to roll it over. The notice also provides guidance for retirement plan sponsors.

Waived Required Minimum Distributions for 2009

WASHINGTON ― The Internal Revenue Service today provided guidance for retirement plan administrators, plan participants and retirees regarding recent legislation affecting required minimum distributions. The Worker, Retiree, and Employer Recovery Act of 2008 waives required minimum distributions for 2009 from certain retirement plans.

Generally, a required minimum distribution is the smallest annual amount that must be withdrawn from an IRA or an employer’s plan beginning with the year the account owner reaches age 70½. The 2008 law waives required minimum distributions for 2009 for IRSs and defined contribution plans (such as 401(k)s) and allows certain amounts distributed as 2009 required minimum distributions to be rolled over into an IRA or another retirement plan.

Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year. Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution.

The notice also provides guidance for retirement plan sponsors. It contains two sample plan amendments that plan sponsors may adopt or use to amend their plans to either stop or continue 2009 required minimum distributions. Both sample amendments provide that participants and beneficiaries can choose to receive or not to receive 2009 required minimum distributions. Also, both sample amendments allow the employer to offer direct rollover options of certain 2009 required minimum distributions.

Plan sponsors may need to tailor the sample amendment to their plan’s particular terms and administration procedures and must adopt the amendment no later than the last day of the first plan year beginning on or after Jan. 1, 2011 (Jan. 1, 2012 for governmental plans).

IRS Provides 2009 RMD Guidance discusses how the Notice defined two new terms:

• 2009 RMDs. These are Required Minimum Distributions which a plan would have been required to distribute (or an IRA owner or beneficiary would have been required to take), if Congress had not adopted WRERA. It includes all RMDs for the 2009 distribution calendar year, including those which could otherwise be distributed as late as April 1, 2010.
  
  
• Extended 2009 RMDs. These are one or more payments in a series of substantially equal distributions (that include the 2009 RMDs) made at least annually and expected to last for the life/life expectancy of the participant, or the joint lives/life expectancy of the participant and a designated beneficiary, or for a period of at least 10 years. This definition is significant because an individual cannot normally roll over one or more of a series of substantially equal distributions, as described in the previous sentence, whether or not those distributions are RMDs. For example, if a plan distributes a participant’s benefit in 15 equal annual installments, the distributions are not eligible rollover distributions (ERDs), without regard to the RMD rules.

RMD Guidance Issued by the IRS for 2009 highlights a Q&A section that addressed issues from the public:

• The deadline for an employee or a beneficiary that had until the end of 2009 to choose between receiving distributions under the 5-year or the life expectancy rule is extended until the end of 2010.
  
  
• In plans that permit a nonspouse designated beneficiary to directly roll over a deceased participant’s account balance, the special rule in Notice 2007-7 is modified so that, if the employee died in 2008, the nonspouse designated beneficiary has until the end of 2010 to make the direct rollover and use the life expectancy rule.
  
  
• Only for 2009, if an individual receives a plan distribution that includes a 2009 RMD, the portion of the distribution that represents the 2009 waived RMD is subject to the optional 10% withholding rules under §3405(b) and any remaining portion is subject to the 20% mandatory withholding rule of §3405(c) (assuming the distribution otherwise qualifies as an ERD). Any distributions made in 2009 are deemed to consist first of any undistributed RMDs from prior years followed by 2009 RMDs.
  

Related Links:

• IRS Notice 2009-82, 2009-41 I.R.B. 491 (October 13, 2009) – Guidance on 2009 Required Minimum Distributions [PDF]
• IRS Notice 2009-82, 2009-41 I.R.B. 491 (October 13, 2009) – Guidance on 2009 Required Minimum Distributions [HTML]
• 2009-41 I.R.B. 491 (October 13, 2009)
  
  
• IRS Notice 2007-07 - Miscellaneous Pension Protection Act Changes
  
  
• H.R. 7327: Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) / Required Minimum Distributions (RMDs)
• Retirement News for Employers - Special Edition, January 2009

DOL Notice of Proposed Individual Exemption Involving Chrysler LLC, Located in Auburn Hills, MI

The DOL announced a proposed exemption to allow a Chrysler LLC health plan for retirees to acquire company securities:

Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today announced a proposed exemption that, if granted, would allow the New Chrysler Corp. to transfer approximately $4.59 billion promissory note and company securities to a Voluntary Employees Benefit Association (VEBA) Plan established to provide health benefits for the company's retirees. The retiree health plan would cover about 120,000 retirees and dependents when it becomes effective on Jan. 1, 2010.

New Chrysler requested an exemption under the Employee Retirement Income Security Act (ERISA) to allow the VEBA plan to hold stock and debt of New Chrysler in order to facilitate the sale of the company to Fiat North America LLC. ERISA prohibits certain plans from holding large percentages of plan assets in the form of employer securities. The law gives the department authority, however, to grant exemptions that protect the interests of plan participants and beneficiaries.

On May 31, 2009, the bankruptcy court issued an opinion allowing old Chrysler to sell substantially all of its assets to New Chrysler. New Chrysler is headquartered in Auburn Hills, Mich., and employs 55,000 employees. New Chrysler is owned by the Canadian Government, the U.S. Treasury, Fiat and the VEBA plan.

The exemption would allow the securities transfer, permit New Chrysler and its health plans to reimburse each other for benefit payments mistakenly paid by the wrong entity during the transition to the new plan, and permit the automaker to recover mistaken deposits to the plan.

The assets of the VEBA plan will be held by the same trust that holds the assets of the plans established by Ford and General Motors for their respective retirees. There will be separate accounting for each plan maintained by the three companies that are now funded through a single trust.

The primary condition of the proposal is the appointment of an independent fiduciary to represent the plan with regard to New Chrysler securities transactions. The independent fiduciary will determine in advance of taking any action regarding the securities that the action is in the interests of the plan and its participants and beneficiaries. The proposed exemption also requires the review of benefit payments by an independent third party administrator and auditor for each of the plans and an objective dispute resolution process. In addition, the proposal sets time limits for the return of mistaken deposits and an objective dispute resolution process.

The proposed exemption is scheduled to be published in the Oct. 5, 2009, edition of the Federal Register. Comments on the proposal and any requests for a public hearing should be submitted to Chrysler@dol.gov or by fax to 202-219-0204. Paper-based comments should be sent to the Office of Exemption Determinations, Employee Benefits Security Administration, Room N-5700, U.S. Department of Labor, 200 Constitution Ave. N.W., Washington, D.C. 20210, Attention: Application Number L-11566.

Related Links:

• News Release
• Notice of Proposed Individual Exemption Involving Chrysler LLC, Located in Auburn Hills, MI [10/5/2009] [HTML]
• Notice of Proposed Individual Exemption Involving Chrysler LLC, Located in Auburn Hills, MI [10/5/2009] [PDF]
  
• DOL Notice of Proposed Individual Exemption Involving General Motors
  
• VEBA Ownership vs. Employee Ownership: The Chrysler and GM Proposed Restructuring
• Employee Ownership at Chrysler and GM