Careful: Some new wrinkles in Form 5500
When HR pros go to file Form 5500 this time around, they’re going to notice some questions that weren’t there before.
That’s because the IRS has decided to include some new compliance questions for the 2015 plan year.
The agency has released a FAQ guide to the compliance questions. The good news? Answering the questions is optional – for now.
Testing methods, timeliness
Specifically, the new questions dig deeper into compliance issues and ask plans about:
- how they satisfy discrimination testing
- methods for test requirements – whether the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) test is used, and
- the timeliness of plan amendments.
Employers should be aware that answering these questions could bring to light compliance issues they may not have been aware of and could lead to follow up from the IRS.
In addition, Schedule H and I of the Forms will ask for more detailed info on plan leakage.
Example: Schedule H previously only asked plans to report on “distributions.” Now, they’re being asked for a more precise definition. One reason the agency is interested in more info in the area: It believes this info – especially leakage from hardship distributions – will help its understanding of retirement unpreparedness.
Perks of paper filing
Employers with at least 250 government forms (W-2s, 1099s, etc.) must file Form 5500 electronically.
However, smaller firms can file using the paper-only Form 5500-SUP.
Although the new compliance questions are optional for both paper and electronic Form 5500 filing, there is one advantage for plans that answer the questions and file on paper.
With paper filing, the answers to the new IRS questions they answer won’t be made public on the Internet – unlike plans that file electronically.
While answering the new questions is an optional task for employers this year, the IRS did say “we strongly encourage you to answer them.” Another reason employers may want to answer the questions for the 2015 filing (even if they keep those answers to themselves): This won’t be voluntary for long.
Experts such as Linda Fisher of Linda T. Fisher 5500 Consulting are confident that answering the IRS’ new Form 5500 questions will be a mandatory task for the 2016 plan filing year.
