The IRS has introduced new compliance questions on the Form 5500 information returns filed annually for 401(k) and other qualified retirement plans. While these questions are optional for the 2015 Form 5500, plan sponsors and service providers should be prepared in case these questions or similar ones are made mandatory for 2016 and thereafter.
On the short Form 5500-SF which most of our clients file, there are 17 new questions or blanks to fill in. The questions cover a variety of topics, including unrelated business taxable income, trust and trustee information, coverage and nondiscrimination testing, plan documents and amendments, and in-service and required minimum distributions.
A Frequently Asked Questions section on the IRS website says, “Although responses to these new questions are optional for the 2015 plan year, we strongly encourage you to answer them.” One could interpret that statement several different ways. Do they mean “strongly encourage” as in, “It would be most helpful to us if you respond, so we really, really hope you will?” Or is it like your boss “strongly encouraging” you to work evenings or weekends? Will there be negative repercussions for not answering? Actually, we wonder if it is more likely for there to be negative repercussions for answering. If a plan happens not to be in compliance, will making an honest response trigger an audit?
The IRS seems to have put on hold issuance of Form 5500-SUP (short for “supplemental”). This was a paper-only form containing the new compliance questions to be used by plan sponsors who do not file their 5500s electronically. This form may make a return if and when the compliance questions become mandatory.
We got a chuckle when the ironically named Paperwork Reduction Act Notice estimated that the average time to complete and file the Form 5500-SUP was 14 hours and 16 minutes. Presumably, this is the amount of extra time we will need to respond to the same questions on Form 5500-SF. That estimate seems outlandish to us. We suspect the estimated time assumes that there are multiple service providers involved and that certain computer systems will need to be reprogrammed. Since the information for our clients is already readily available to us and we handle all the relevant functions in-house, we do not anticipate these compliance questions to present much of a hardship to us.
Although concerns have been raised about some of the logistics of providing the information and the timing of the new rules, we have not seen too many complaints about the questions themselves. To us, the questions seem fair and reflect the kinds of things that should be asked on an annual plan return. If anything, we think not enough has been asked in the past.
One last thing: the final deadline for submitting calendar year 5500s has been October 15 for many years. A new law passed last summer gave filers an extra month, to November 15. Unfortunately, there were some problems with that change, not the least of which was that the law extended the deadline for IRS purposes but not Department of Labor purposes. Oops! Moreover, some people thought having an extra month to work on the form was actually a bad thing. In the end, Congress passed another law in December repealing the change in deadline. So the absolute last date for filing the 5500s will remain at October 15.