I typically provide some reminders and tips relative to preparing and filing annual IRS Form 5500s around this time of year (because of the July 31 unextended deadline for calendar year plans). I do will do that; however, given the COVID-19 situation, as well as the government’s very high level of recent activity in connection with non-COVID-related benefit issues, there is also a summary of additional issues for your benefit plan radar. Because heads are understandably spinning from all of this, I will keep this short. This by no means an exhaustive list or analysis, and it's more shorthand than usual.
Form 5500 tips
• Many plan-related deadlines have been extended on account of COVID-19. The July 31 Form 5500 deadline for calendar year plans is not one of them and has not yet been extended.
• Be sure to file a Form 5500 for a retirement or welfare plan if you are required to do so. The potential penalties for late or missed filings are enormous (upwards of $2,000 per day until filed). There are correction programs available for missed/late filings, if you participate before the government gets involved.
• Closely review the draft Form 5500 to ensure it is complete and accurate and does not unnecessarily raise red flags that might trigger a governmental audit or investigation, which will be much more burdensome and costly than a proper review in the first place. The usual suspects here include but are not limited to reporting an incorrect plan name or employer name, the failure to fix and properly report late deposits, incorrect use of codes, and the failure to recognize and report controlled groups or multiple employer situations.
• It is the employer plan sponsor who signs the Form 5500 declaring under penalty of perjury that the representations are complete and accurate. Don't increase your odds of winning the “audit lottery.” Ascertain the status of your Form 5500’s preparation, including the audit report if necessary, and carefully review the draft with the appropriate advisers.
• Keep records of having timely filed, as well as having timely filed for any extensions.
Other new (and not so new) plan-related considerations
• Operate plans in accordance with the mandates and options related to recent COVID-19 laws and guidance such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The issuance of COVID-19-related guidance affecting welfare and retirement plans is a constant barrage and wide ranging, to say the least. As examples, appropriate notices should be provided to participants, and formal plan amendments will need to be put in place in the future. Most recently, on June 29, the IRS issued Notice 2020-52 addressing the ability of plan sponsors to cease “safe harbor” 401(k) plan contributions mid-year.
• Consider the options made available and changes made by the recently enacted by the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Formal amendments will also be required for the SECURE Act provisions.
• Take advantage of the newly issued Department of Labor final regulations regarding electronic delivery of required disclosures under the Employee Retirement Income Security Act.
• Continue to operate your plan in accordance with the plan terms (that is, make sure the plan terms and plan operations are consistent). An area where there appears to be a good deal of confusion and divergence in this respect seems to involve automatic enrollment and automatic escalation provisions.
• The IRS will soon be issuing “opinion letters” to preapproved sponsors, which will open the two-year window to restate a preapproved plan document and submit a determination letter application, if that option is available to a particular plan. The window will open on Aug. 1, 2020, and close on July 31, 2022. A high level of diligence should be exercised during this process, as often plan terms are not transferred appropriately (that is, provisions get left out or are inadvertently and mistakenly changed). A failure to take proper care here could result in costly qualification failures.
• Confirm that any changes recently implemented relative to hardship distributions are the subject of a formal plan amendment that is consistent with the operations and choices that were made.
• The Department of Labor recently issued additional guidance regarding plan investments with environmental, social and corporate governance objectives.
• As always, keep an eye on plan fees, as well as your fiduciary process in general.
• The Patient-Centered Outcomes Research Institute fee is back. The health care reform fee was set to expire, but was revived this last December. The due date is July 31 for plans subject to the fee.
• The Department of Labor recently issued proposed regulations attempting to bring some semblance of the “fiduciary rule” back to life. The prior version was finalized after about a decade in the making and was then thrown out by a court in 2018 prior to full implementation. The overall objective was to impose increased fiduciary duties on those providing investment advice.
In summary, there is a lot, and, accordingly, it remains important to keep eyes on the basics as well as the exhausting level of new developments.
John C. Hughes is a partner with Hawley Troxell and a member of the firm’s employee benefits practice group. His practice is focused in the complex area of ERISA/employee benefits. Hughes counsels clients nationwide on a wide variety of issues involving all kinds of employee benefit plans, including 401(k), deferred compensation/409A, profit sharing, pension/defined benefit, 457, 403 (b), ESOP, governmental, 125/cafeteria, and health and welfare plans.