- Electronic signature required for 5500 filings
- Deposit 401(k) contributions as soon as possible
- Avoiding plan loan defaults
Electronic Procedures Are In Effect For Filing Of Forms 5500
The U.S. Department of Labor (DOL) has gone paperless with 5500 filings since implementing procedures that require retirement plan Forms 5500 to be signed and filed electronically via the Internet.
The DOL no longer accepts paper 5500 filings for retirement plans, welfare plans and 403(b) plans, with only the exception of Form 5500 EZ, which will continue to be filed on paper.
Plan Sponsors must register with the DOL to obtain "filing signer credentials." RCC cannot obtain the signature credentials with the DOL for its clients. Generally, under the new electronic procedures, once a plan's administration is completed and a 5500 prepared, an email will be sent to the client notifying him/her to go online to sign the 5500. The electronically signed 5500 then will be sent back to RCC for review, and RCC will transmit the 5500 filing to the Department of Labor for each Plan.
Deposit 401(k) Contributions And Plan Repayments Into The Trust ASAP
The Department of Labor (DOL) and the Internal Revenue Service (IRS) continue to emphasize the importance of plan sponsor's depositing 401(k) contributions and plan loan repayments deducted from payroll into the trust as soon as administratively possible after the money is deducted from paychecks. Plan audits often cite late deposits as a problem to be corrected. The result can be penalties to the company and a requirement to make up for "lost earnings" to participants.
If an employer discovers that deposits have not been made on a timely basis, this can be corrected by determining lost earnings through the DOL's online calculator. The lost earnings would be deposited in the Plan's trust. In addition, a filing can be made through the Voluntary Fiduciary Correction Program to demonstrate that the correction has been completed. Taking these voluntary corrective actions is viewed more favorably by the IRS and DOL upon an audit of a Plan. RCC can assist with required corrections, determining lost earnings and the VFCP filing.
RCC recommends that you review your procedures to determine if you can more quickly make the 401(k) and loan payment deposits into the Plan's trust. These deposits should be made as soon as the funds can be segregated from general assets. The DOL has issued a Safe Harbor (for companies with fewer than 100 employees), stating that contributions deposited by the seventh business day after a payroll period are considered timely.
Keep Up Loan Payments To Avoid Mandatory Default
Retirement plan loan payments must be made on a regular and timely basis according to the loan's amortization schedule, with payments deducted via payroll, in order to stay in compliance and avoid a loan default.
If payments are not made over the period of a calendar quarter of a year, the loan is considered to be at risk for default. Subsequently, if payments are not made over the second quarter, the loan is considered to be in mandatory default, according to IRS regulations.
Once a loan goes into default, the remaining amount of the loan must be taken as a taxable distribution to the participant. If the participant is not at least age 59-1/2, the amount incurs a 10 percent penalty in addition to normal income taxes. Defaulted loans are reported to the IRS after the end of the Plan Year on Form 1099-R filings.
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