Short Plan Years and Sharing Credentials
EFAST2 Part 10
In our continuing series of FAQs on EFAST2, we are addressing the issues and procedures with which the 5500 preparers and plan sponsors will need to familiarize themselves to make the transition to electronic filing.
Recently, an organization published an article in which it addressed several EFAST2 questions. While the article provided valuable information regarding EFAST2, the article also contained a few incorrect answers. Since a plan which relies on the responses would be subject to late filing penalties, we felt it necessary to correct the responses.
2009 short plan years. The article states that a plan sponsor with a short 2009 plan year may file a 5500 using 2008 paper copies as long as it files by December 31, 2009. The article also states that in the alternative, the plan sponsor is eligible for an automatic extension of 90 days from the date on which electronic filing is available. The article further states that a plan with short 2009 plan year has until the later of April 1, 2010 (90 days following January 1, 2010), or the plan’s normal deadline. Both statements are incorrect. The 5500 instructions provide that a plan with a short 2009 plan year whose filing deadline is before January 1, 2010 (e.g., terminates before June 1, 2009) has two options: (1) the plan may file a 5500 using 2008 paper forms by its normal deadline; or (2) the plan can take advantage of an automatic extension and file electronically. The special extension is 90 days following the date on which the DOL makes electronic filing available (targeted to be January 1, 2010). The portion of the 5500 instructions which provides the options for plans with short 2009 plan years follows:
2009 Short Plan Year Filings. Short 2009 plan year filers whose due date to submit their 2009 filing is before January 1, 2010, will be given an automatic extension to electronically file their complete Form 5500 within 90 days after the 2009 filing system is available on the DOL website. This special extension is being granted to encourage such short 2009 plan year filers to file their 2009 Form 5500 annual return/report electronically under EFAST2. Short 2009 plan year filers whose due date is before January 1, 2010, and who choose not to take advantage of the special extension, must use plan year 2008 forms and must submit their 2009 filing to EFAST on or before the due date for their short plan year filing. Note: The DOL confirms the position taken in the 5500 instructions in Q-3 of its recently issued FAQs on EFAST2.
A plan with a short 2009 plan year which has a filing deadline after December 31, 2009 (e.g., a plan which terminates after May 31, 2009) is not eligible to use the 2008 paper forms nor is it eligible for the automatic extension.1 A plan with a short 2009 plan year that has a filing deadline after December 31, 2009 must file electronically and is not eligible for the automatic extension. We recommend that a plan in such circumstances obtain an extension by filing a Form 5558 so that it has time to familiarize itself with electronic filing. The following examples illustrate the options available to a plan with short 2009 plan year.
Example. Employer X maintains a calendar year plan. Because of economic circumstances, the employer terminates the plan in early 2009 and makes a final distribution of plan assets on May 15, 2009. X’s deadline for filing its final 5500 is December 31, 2009. X has two options available: (1) file paper copies of the 5500 using 2008 forms, or (2) wait for electronic filing to become available and file within 90 days of the date it becomes available.
Example. Assume the same facts as the previous example except X does not make the final distribution of plan assets until June 15, 2009. X’s deadline for filing its 5500 is January 31, 2010. Accordingly, X may not file using 2008 paper forms nor is it eligible for the automatic extension. Unless X obtains an extension, it will need to file electronically by January 31, 2010. A filing after January 31, 2010 would be subject to late filing penalties.
Credentials. In explaining the steps a 5500 preparer should undertake to prepare for electronic filing, the article instructs preparers to collect the credentials from their clients. This instruction violates specific restrictions the DOL has placed on credentials. The DOL does not permit an individual to share his/her credentials with another person. The signature agreement contains the following language: “I understand and agree that the electronic signature is not transferable and that the inclusion of such electronic signature in a Form 5500 Series return/report filed in electronic form shall have the same legal force and effect as my hand written signature. The follow-up DOL email an individual receives after registering for credentials contains the following language: “As part of the PIN application, you agreed not to disclose or share your PIN with anyone, including commercial service providers." The DOL reconfirms the restriction on sharing credentials in its recently issued FAQs on EFAST2. In the FAQs, the DOL indicated that a third party administrator (TPA) may not obtain plan signer credentials on behalf of the employer. In addition, the FAQ states: “The EFAST2 process for obtaining Filing Signer credentials is designed so that the person signing electronically must be the person registering for the credentials."
So, if the DOL does not permit an individual (e.g., officer of the plan sponsor) to share the credentials with the preparer, how does an authorized individual sign the 5500 without providing the credentials to the preparer? The typical method a preparer will use to have the employer sign the 5500 electronically will be for the preparer to invite the authorize signer to a signing ceremony over the internet. Of course, the preparer will need to utilize a private web-based system or IFILE to effect a signing ceremony. For those preparers who are contemplating ignoring the restriction and having their client provide them with the filing signer credentials, they may want consider whether they feel comfortable in signing (under penalties of perjury) their client’s 5500. By ignoring the DOL’s restriction, the preparer is effectively signing the 5500 for their client. If the DOL later determines the client did not sign the 5500, the DOL can reject the filing and assess late filing penalties.
Because of the country’s difficult economic circumstances, all preparers have some plans which are terminating. Furthermore, obtaining and properly applying credentials will be the first important challenge of EFAST2. Therefore, all preparers will need to familiarize themselves with the EFAST2 transitional rules for short 2009 plan years and with the requirements for credentials.
1 A DOL official indicated to us that it probably would not reject a paper filing for a short 2009 plan year whose filing deadline is after December 31, 2009, but which is submitted by December 31, 2009. However, a preparer should alert their client there is an element of risk to this strategy.
EFAST2 Workshop. EFAST2 will no doubt be the most significant change that has affected retirement and welfare plans during the past decade. Our Workshop will prepare you to make the transition to mandatory electronic filing. Attendees also will have access to two important tools: an EFAST2 checklist and a concise letter instructing employers how to obtain required credentials. We also have scheduled two other seminars to follow the EFAST2 Workshop – Plan Forms, Notices and Amendments and the ERISA Workshop. For more information on the seminars, click here.