EFAST2 Part 23
The IRS has yet to issue the Form 5500-EZ and its accompanying instructions. The IRS has informed us that it will issue the form and instructions sometime this summer. The delay seems difficult to understand since the IRS does not intend to change the form. The delay also places one-participant plans with short 2009 plan years and which have a filing deadline before this summer in a difficult position. When we pressed the IRS for what guidance we could provide to plans in such situations, their response to us was – “Tell them we will work with them." What the IRS could possibly mean by that statement is difficult to determine.
The following FAQs address issues relating to the annual reporting requirements for one-participant plans:
Has the DOL and the IRS changed the definition of one-participant plan for purposes of the 2009 Form 5500 filing?
Yes. The instructions for Forms 5500 and 5500-SF reflect a new definition of one-participant plan for the 2009 plan year. Furthermore, the IRS official responsible for drafting that one-participant portion of the instructions has confirmed to us that the IRS will make the same change to the Form 5500-EZ instructions.
What is the change in the definition of a one-participant plan for 2009?
For purposes of Form 5500 filing for the 2009 plan year, a one-participant plan is:
- A plan that covers only an individual or an individual and his/her spouse who wholly owns a trade or business (incorporated or unincorporated); or
- A plan for a partnership (or an entity taxed as a partnership) that covers only the partners or the partners and the partners’ spouses.
In previous years, a one-participant plan was eligible to file the Form 5500-EZ (rather than the Form 5500) if, in addition to being a one-participant plan, the plan:
- satisfied the coverage requirements without being combined with another plan of the employer;
- did not cover an employer that was part of a controlled group; and
- did not cover an employer for which leased employees performed services.
Commencing with the 2009 plan year, a one-participant plan no longer is subject to the three conditions described in this paragraph.
Example 1: George owns 100% of G1, a sole proprietorship and 100% of G2, a corporation. Neither business employs anyone other than George. G2 sponsors a plan with G1 as a participating employer and George as the only participant. In 2008, the plan could not have filed 5500-EZ (i.e., the plan had to file Form 5500) because the plan covered businesses under common control. In 2009, the plan can file Form 5500-EZ. In fact, in 2009, the plan CANNOT file Form 5500, because one-participant plans are ineligible to file the full form (as explained below).
Example 2: Dr. Mary owns 100% of a medical corporation which employs Mary and 3 staff members. The corporation has a 401(k) plan and Mary has a $1,000,000 balance, thanks to rollovers. Mary would prefer not to disclose her finances on the Internet. Mary can spin off her portion of the plan into a separate plan, covering only Mary. The existing plan will continue for the other employees. The two plans will have identical terms, and the corporation will test the two plans together for coverage and nondiscrimination. In the past, the permissive aggregation would have prevented Mary from using Form 5500-EZ for her own plan. Now, she can file Form 5500-EZ for her plan and Form 5500 (or 5500-SF) for the employees' plan, and thereby increase the privacy of her finances.
Under EFAST2, is a one-participant plan required to file electronically?
No. An employer may not file Form 5500-EZ electronically. The employer must file the return on paper directly with the IRS. However, a sponsor of a one-participant plan may elect to file Form 5500-SF electronically with the DOL in lieu of the paper Form 5500-EZ.
What conditions must a one-participant plan satisfy to file a Form 5500-SF?
In order for a one-participant plan to qualify to file Form 5500-SF, the only restriction with which the one-participant plan need comply is the “no employer securities" requirement. (This should not be a problem because if the plan owns employer stock, the participant is not the sole shareholder.) The other 5500-SF requirements are not applicable. Comment: If in the very rare situation, the one-participant plan has 100 or more participants (e.g., 100 partners and their spouses), the plan only may file a Form 5500-EZ and not a Form 5500-SF.
If a one-participant plan elects to file a Form 5500-SF, will the plan complete all of the questions on the form?
A one-participant plan utilizing the Form 5500-SF checks a box on the form indicating that it is a one-participant plan. Furthermore, the plan will not answer the following questions on the form:
- Line 6a and b (eligibility to file form)
- Lines 8b-8j (income and expense, other than contributions)
- Line 9b (welfare codes)
- Line 10 other than 10g (compliance questions; the plan must state whether there are plan loans)
- Lines 13a-c (terminations and transfers)
May a one-participant plan elect to file a Form 5500 instead of Form 5500-EZ or 5500-SF?
No. The option to file Form 5500 is no longer available to a one-participant plan.
Is a Form 5500-EZ subject to public disclosure on the DOL’s website?
If a one-participant plan elects to file Form 5500-SF instead of Form 5500-EZ, is the form subject to public disclosure on the DOL website?
Yes. A one-participant plan that files Form 5500-SF should be aware that the DOL will publicly disclose the form on the DOL website. Therefore, a sponsor of a one-participant plan who is concerned with privacy should take the public disclosure into consideration in deciding whether to file Form 5500-SF or Form 5500-EZ.
If the plan assets of a one-participant plan are $250,000 or less at the end of the plan year, does the plan need to file Form 5500-EZ?
No. In fact, the plan does not need to file Form 5500-EZ even if the plan assets exceeded $250,000 in a previous plan year, so long as the assets are less than $250,000 at the end of the current plan year. The employer aggregates all plans it sponsors in determining whether the employer must file. The plan must file in the year of termination, regardless of the asset amounts. Comment: The IRS apparently is aware that a one-participant plan can simply stop filing when its assets fall below $250,000 without filing a final return. However, we are concerned that the DOL may not be prepared for a plan which ceases filing because it has dropped below the $250,000 threshold. Therefore, we recommend that a one-participant plan which is somewhat over the $250,000 threshold (but could go below that in future years), use Form 5500-EZ (not Form 5500-SF) until the DOL specifically indicates they are prepared for such a situation. Otherwise, the plan may find itself confronted with a penalty letter for non-filing.
If a one-participant plan has been filing Form 5500 because it did not meet the 5500-EZ requirements (e.g., part of controlled group) but is now eligible to file Form 5500-EZ, may the plan cease filing if its plan assets at the end of the plan year are less than $250,000?
Yes. However, we are concerned that the DOL may not be prepared for such situations and the sponsor may receive a late filing penalty letter. Of course, the one-participant plan could file Form 5500-EZ or 5500-SF and avoid the risk of the DOL sending out such a letter. One advantage of filing a Form 5500-EZ or Form 5500-SF is that it starts the statute of limitations, thereby limiting the potential penalties for disqualification or sanctions under Audit CAP. The statute never commences for a plan which does not file (even if there is no legal requirement to file).
Is a one-participant plan eligible to correct late filings under the delinquent filing voluntary compliance (DFVC) program?
No. The DFVC program is not available to a one-participant plan even if it files Form 5500-SF. A one-participant plan which files late should include a letter to the IRS requesting an abatement of the IRS penalty.
What filing options are available for a one-participant plan that has a filing deadline that occurs before the IRS releases the Form 5500-EZ (e.g., short 2009 plan years)?
A one-participant plan with a filing deadline that occurs before the release of the Form 5500-EZ has three options:
- File a Form 5500-SF;
- Use a 2008 version of the Form 5500-EZ (including the correct dates on the form) and file it directly with the IRS at its Ogden, UT Service Center. The IRS verbally informed ASPPA that a one-participant plan may use the 2008 form until it releases the 2009 version. However, as of the date of this technical update, the IRS has not formally confirmed this option. Although the IRS has not formalized this option, it is unlikely the IRS would reject such a filing.
- Wait to file until the IRS releases the 2009 version of the form.
May the IRS or DOL require a one-participant plan to file a Form 5500-SF?
No. The government may not require a one-participant plan to file a Form 5500-SF.
If a one-participant plan needs to file an annual return for the 2008 plan year (late, amended or fiscal year filing), what filing options are available?
For a one-participant plan that needs to file an annual return for 2008, the plan sponsor has the following options:
- Through October 15, 2010, the plan sponsor may file a paper version of the 2008 Form 5500-EZ with the DOL in Lawrence, KS. After October 15, 2010, presumably, the plan sponsor would file the paper version of the form with the IRS in Ogden, UT.
- Through June 30, 2010, the plan sponsor may file the 2008 form electronically under EFAST (not EFAST2).
May a one-participant plan elect to file a Form 5500-SF for the 2008 plan year?
No. A plan sponsor (including a one-participant plan) may not use the new Form 5500-SF to amend a filing for a plan year prior to 2009. Although a one-participant plan may elect to file electronically by using a Form 5500-SF instead of a Form 5500-EZ, the one-participant plan may not use the Form 5500-SF for plan years prior to 2009.
For plan years prior 2008, what version of the Form 5500-EZ will a one-participant plan use for a late or amended filing?
For plan years prior to 2008, the one-participant plan must use the correct paper version and file the amended filing with the IRS.
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.
– 35 cities, March – May
We will discuss these changes and more at our annual Form 5500 workshop. We will discuss all the new filing requirements for 403(b) and qualified plans and all the new information the form requires. This workshop can help you prepare for this transitional year.
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.