EFAST2 Communications

EFAST2 Part 22

In our continuing series of FAQs on EFAST2, we are addressing the issues and procedures with which 5500 preparers and plan sponsors will need to familiarize themselves to make the transition to electronic filing. One of the more important steps in making the transformation to mandatory electronic filing, will be communication of the changes to the plan sponsor, the plan auditor and service providers. In the following FAQS, we discuss some of the more important issues regarding EFAST2 communications:

How will the person who will sign on behalf of the plan administrator know that he/she needs to obtain filing signer credentials?

The DOL has sent postcards informing plan sponsors that it now requires electronic filing of a Form 5500. However, 5500 preparers should expect to educate their clients on the procedure for obtaining filing signer credentials.

Under EFAST2, how will a plan administrator know that a Form 5500 is available for signing?

If the preparer is using a web-based system, the preparer will associate the email address of the filing signer with the filing. The system will generate an email to the filing signer when the filing is ready to sign. Similarly, if the preparer is filing under IFILE, the preparer will associate a filing signer’s email address. IFILE will generate an email to the filing signer, provided the filing signer has obtained credentials.

Does EFAST2 change the approach for obtaining an extension to file a Form 5500?

No. The preparer may file a Form 5558 with the Internal Revenue Service to obtain a 2½ month extension. The IRS does not provide an electronic means of filing the extension request. The preparer must file a paper copy of the form with the IRS Service Center in Ogden, UT. A plan can continue to qualify for the automatic extension (i.e., to the extended due date for the plan sponsor’s income tax return) if the plan year and the employer’s tax year are the same, and the employer timely extends its tax return due date. Under EFAST2, the employer must retain a copy of the Form 5558 for its records, but unlike prior plan years does not attach the Form 5558 to the Form 5500 filing. Note: The preparer may obtain an extension under Form 5558 without the employer’s signature.

Will a plan sponsor use the Form 5558 to also obtain an extension to file a Form 8955-SSA?

Yes. The IRS soon will provide an updated Form 5558 to address an extension for filing Form 8955-SSA. Form 8955-SSA replaces the Schedule SSA, which no longer is part of the Form 5500 filing.

If a plan requiring an independent plan audit does not include the audit, how will the DOL communicate the failure to include the plan audit?

If the return is filed without the plan audit, the DOL will generate an email with a filing status of “filing error." Under IFILE, the preparer then must go to the DOL’s website where the error will be described. Under some private systems (e.g., Relius Web Client), the system will capture the description of the error and include it with the email. The plan sponsor will need to amend the filing and include the plan audit. Unfortunately, the DOL is not indicating how much time it will provide to the plan sponsor to amend the filing. The DOL simply states that correcting the incomplete filing is a matter for DOL enforcement. However, the DOL has communicated that it does not intend to provide 30-day letters. Instead, it intends to issue a 45-day letter that requires the plan sponsor to explain why it should not be penalized. Note: Because of the significance of the penalty (i.e., potentially as much as $50,000) for failing to include the audit, we recommend that the preparer help the auditor understand how EFAST2 has changed the procedures regarding the plan audit.

Does the plan audit have specific requirements and size limitations? If so, will auditors be aware of the procedures and limitations?

Yes. The audit must be in a PDF format and the size cannot exceed 10mb. Therefore, the DOL recommends that the resolution for the file not exceed 300x300 and that it be saved or scanned in black and white or grayscale. Unless the auditor has familiarized himself/herself with EFAST2, he/she may unaware of the requirements or size limitations. Note: Since many plan sponsors do not have scanners, you may want to ask the auditor to save the plan audit in PDF rather than have the auditor provide a paper copy of the audit and expect the plan sponsor to scan it.

Does a plan service provider (including a financial institution) have an obligation to provide fee and expense information to the plan administrator for purposes of completing a Schedule C? Must the information be presented to the plan administrator on a Schedule C? If so, what is the deadline for providing that information?

Yes. The service provider must provide the information to the plan administrator to complete a Schedule C. The information does not have to be presented to the plan administrator on a Schedule C. In fact, the examples of the fee and expense information we have reviewed will require the preparer to be reasonably familiar with the schedule and will require the preparer to make determinations as to the proper categories for the information. With an exception for a common/collective trust (CCT) or a pooled separate account (PSA), ERISA does not provide a specific deadline for service providers to provide information to complete Schedule C. However, since the form requires the preparer to inform the DOL of service providers who fail to provide the necessary information, service providers would be obligated to provide that information before the Form 5500 is filed with the DOL. The law requires a CCT or a PSA to provide their financial information to the plan within 120 days following the close of the plan year.

5500 preparer letters

Those who attend our Form 5500/EFAST2 Workshop will receive a selection of sample letters. These are letters a preparer may use in communicating with the employer and others regarding preparation of the Form 5500, including:

  1. a letter explaining electronic filing of the Form 5500 and a step-by-step explanation of how to obtain filing signer credentials,
  2. a letter to the plan’s auditor regarding the importance of a timely audit and how EFAST2 impacts the audit,
  3. a letter to the employer informing the employer of the extended due date of the return,
  4. a letter advising the employer of the public disclosure of the return, and
  5. a letter to an employer with a short plan year advising of the return due date.

Schedule C samples

By far, the most significant change in the Form 5500 is the change to the Schedule C. Preparers universally agree on its complexity and the difficulty in determining the proper reporting of fees and expenses. In our Form 5500/EFAST2 Workshop, we will thoroughly explain the new Schedule C. As an added bonus to attendees, we will provide several sample completed Schedules C.

Form 5500 / EFAST2 – 35 cities, March – May

Mandatory electronic filing has garnered most of the attention when discussing the Form 5500. EFAST2 has overshadowed the many changes that the DOL has made to the Form 5500 and the accompanying schedules. In our Form 5500 Workshop, we will go through the Form 5500 and the Schedules on a line-by-line basis, focusing particular attention to the changes. Preparers need to understand both EFAST2 and the changes to the forms to avoid filing the same Form 5500 twice.

401(k) Plan Workshop – 22 cities, March – May

Prototype and volume submitter restatements for 401(k) plans, as well as emerging opportunities for growing Roth accounts should make 2010 a challenging year. Many employers are looking to address this year’s challenges by revisiting their plan designs and options. This workshop can help prepare you and your organization for these changes and more.

In many locations, the programs are offered back-to-back. Early registration and multi-program discounts are available. Visit our Web site now for links to additional details, dates/locations, online brochure, and to register online.