OACUBO Professional Development Conference

1. OACUBOProfessional Development Conference April 26, 2010 David O. Reyes CPA - Benefits Tax Compliance Pam Lebold CPA - Risk Management

2. Benefits Tax Compliance • Greater Transparency • More Disclosure • Accountability

3. Today’s Program • Form 5500 Overview • What plans must file • 5500 and required Schedules • Changes affecting the 2009 Form 5500 • Changes to the 2009 Forms • 403(b) Plan expanded reporting requirements • New Electronic Filing Requirements • 457/Deferred Compensation Plan Compliance • Excess Benefit Transactions

4. Form 5500 ComplianceOverview • Who must file? • Pension and Welfare Benefit Plans subject to ERISA • Pension Plans-401(k), 403(b), Pension, Profit Sharing • Welfare Benefit-Medical, Dental, Life Insurance, Disability etc. • Types of Welfare Benefit plans-Funded (Trust) and Unfunded (Insurance/Self Insured)

5. Form 5500 ComplianceOverview • Most Welfare Benefit plans are Insured “unfunded arrangements”. • Unfunded plans have filing exemption <100 • Unfunded plans >100 participants must file • Other plans exempt from filing-SIMPLE, SEP, Church Plans, Government Plans • Due date is last day of the 7th month after end of plan year. 2 ½ month extension available, Form 5558.

6. Form 5500 ComplianceOverview • Form 5500 and Schedules • Schedules filed are dependent of type of plan, size of plan, and plan features • Large plan vs. Small plan • Most Common Schedules for all plans • Schedule A- Insurance • Schedule D-Investments in Pooled or Collective Funds • Schedule I (Small Plan)- Balance Sheet and Income Statement, Questions on plan operations • Schedule R –Distribution reporting, plan funding and coverage information

7. Form 5500 ComplianceOverview • Schedules only for large plans • Schedule C- Service providers paid > $5,000 • Schedule G-Reporting loans and prohibited transactions • Schedule H-Income statement, balance sheet, accountants opinion, questions about the plan • The accountants opinion is the most significant difference between a large and small plan • Form 5500 and Schedules open to public inspection

8. Form 5500 ComplianceOverview • Significant penalties may be assessed for late filings • DOL $1,100/day • IRS $25/day capped at $15,000 per year • Delinquent Filer Voluntary Compliance Program is available from the DOL • Penalty reduced to $10/day • Per plan cap - multiple filings • Avoids both DOL and IRS full penalties

9. Key Form 5500 Changes for 2009 • Changes to some of the Schedules • Expanded filing requirements for 403(b) Plans beginning with the 2009 filing • New Electronic Filing requirements effective for plan years beginning in 2009

10. 2009 Form 5500 ChangesSchedule C – Extensive Changes • Continues to be limited to large plan filers, and the $5,000 reporting threshold was retained • Requires direct compensation paid by the plan to be reported on a separate line from indirect compensation received from sources other than the plan or plan sponsor • Additional codes added to types of services provided • Alternative reporting option: Indirect compensation • New Part II: Identify each service provider that failed or refused to provide the information necessary to complete Part I

11. 2009 Form 5500 Changes • Form 5500 • New pension plan characteristics codes • Question on number of contributing employers • Optional line for principal preparer has been deleted • Schedule A • Identify insurers that fail to supply information • Schedule H • Large plan failures to pay benefits due • Schedule of delinquent participant contributions – Questions on blackout compliance • Reporting of mutual fund dividends

12. 2009 Form 5500 Changes (Cont’d) • Schedule I • Small plan failures to pay benefits due • Questions on blackout compliance • Separate disclosure of fees paid to administrative service providers • Schedule SSA • No longer required beginning with 2009 filing • Replaced with IRS Form 8955-SSA • Attachments Under EFAST 2 • Accountants opinions/financial statements • Actuary attachments to Schedule SB • Attached to the 5500 in pdf or plain text files (ASCII)

13. 403(b) Plan Reporting Changes • On Nov. 16, 2007, the Department of Labor (DOL) issued “Annual Reporting and Disclosure; Revision of Annual Information Return/Reports; Final Rule and Notice” • The exemption in section 2520.104-4(b)(3) is being eliminated,with the result that 403(b) plans subject to Title 1 will now be treated the same under the regulations as any other Title I pension plan for purposes of the annual report requirement under Title I of ERISA.

14. 403(b) Plan Reporting Changes • Effective for 2009 filings, ERISA covered 403(b)’s are required to file a complete 5500 • Must complete all the same schedules as a 401(k) plan • Large plans will require Schedule H and accountants’ opinion with financial statements • FAB 2009-2, DOL ruling which allows plan auditor to exclude certain plan participants and their investments for 5500 and audit purposes • www.dol.gov/ebsa/403b.html

15. Electronic filing-EFAST2 • EFAST2 replaces EFAST1 • Electronic filing becomes mandatory with EFAST2 for plan years beginning on or after 1/1/09 • Required for retirement and welfare plans • Exception: Form 5500-EZ electronic filing not available • Form 5500-EZ may elect to file a Form 5500-SF and electronically file • Also applies to 403(b) plans, except those not subject to Title I of ERISA • Any plan which has a due date before 1/1/10 will automatically have an extension until 90 days following the date on which the Form 5500 is available for filing electronically (i.e. 3/31/10) • Short plan-years are encouraged to wait and file electronically, but it is not required – May file utilizing the prior year’s form and mail the forms

16. Electronic filing-EFAST2 • Software: Three options • A private, Web-based system • A third-party software application • DOL’s Web-based system (IFILE) • Registration with EFAST2 • Began 1/2/2010 • Must register if using IFILE or third-party software • www.efast.dol.gov and click “Register” • If you are registered for EFAST1, you will need to register again for EFAST2 • All persons who touch a Form 5500 in any way, including signers, will need to register with EFAST2 and obtain a user ID and PIN • DOL will limit one set of log-in credentials per e-mail address – can’t obtain signature authority for the client

17. Electronic filing-EFAST2 • When registering, disclose what user types(s) you are. The type selected affects the available menu. • Filing author (return preparer) • Filing signer (person who signs the return) – individuals, not plan sponsors/entities – Schedule author (schedule-only preparer – i.e. actuary and Schedule MB or SB) – Transmitter (party who transmits the electronic return) – Third-party software developer

18. Electronic filing-EFAST2 • IFILE – the basics of how it works • Complete forms on screen by navigating through each section of each form • Add forms by clicking on the schedule name/letter from a menu and completing the form • Add attachments such as the accountant’s opinion/report • Accountant’s opinion/report MUST be in PDF format only, as it requires a signature • Other attachments can be PDF or text files • 2GB limit on the size of the electronic file; large attachments will not be able to be transmitted • Once preparation is complete, associate a signer • Provide signer’s e-mail address • Program searches and matches the e-mail address to those registered with EFAST2 • If the signer is registered, an e-mail will be generated informing the signer that a return is awaiting their signature • If the signer is not registered or if the e-mail address entered is incorrect, an error message will be displayed

19. Electronic filing-EFAST2 • Other items • Plan sponsor must maintain a paper copy of the electronic return, complete with original signatures • Extension procedures will not change (although Form 5558 will no longer be required to be attached to the Form 5500) • Amending pre-2009 forms or filing pre-2009 forms late under DFVC program must do so electronically • DFVC - Use current year forms and indicate the dates • If amending, you must resubmit the Form 5500 and all of the schedules included with the original filing (even those that remain unchanged) • Must reference the original acknowledgment ID with the amended filing

20. 457 Nonqualified Deferred Compensation Plans • Two types - 457(b) and 457(f) • Only available to nonprofit organizations • Focus on 457(b) plans • Two common issues • Proper timing of FICA withholding • Failure to file proper Top Hat filing

21. Excess Benefit Transactions • IRC Section 4958 • Penalty on the individual for non-fair market value transactions • Most common: unreasonable compensation • Individuals are “disqualified persons” or insiders

22. Excess Benefit Transactions • 1st tier penalty: 25% of the excess benefit • 2nd tier penalty: 200% if correction not made • Penalty cannot be paid by organization • How to correct excess benefit

23. Excess Benefit Example • College President’s comp & benefits = $400,000 • Assertion that reasonable compensation = $300,000 • Excess benefit = $100,000 • 1st tier penalty = $25,000 • Correction = pay $100,000 back to College

24. Safe Harbor for Unreasonable Compensation • Shifts burden of proof to IRS • 3 requirements: • Persons making decision are independent • Comparability data • Contemporaneous documentation • 990 questions