Employee Benefits-IRS Issues Frequently Asked Questions Regarding The IRS Compliance Questions On The 2015 Form 5500-Series Returns

Here are the F & Qs:

The IRS has introduced new compliance questions on the 2015 Form 5500-series returns. These IRS compliance questions will help the IRS to effectively focus on specific factors and issues of federal tax law compliance. Although responses to these new questions are optional for the 2015 plan year, we strongly encourage you to answer them. These FAQs clarify some of these new questions.

1. For the compliance question that asks how the 401(k) plan satisfies the nondiscrimination requirements for employee deferrals and employer matching contributions, which box should I select if the plan uses both the design-based safe harbor method and an ADP/ACP test?

Choose only the “ADP/ACP test” checkbox if the plan uses both the design-based safe harbor method and an ADP/ACP test. We expect to further clarify this question and the related instructions on the 2016 Form 5500-series returns.

2. For the compliance question that asks if the “current year testing method” for NHCEs is used in performing ADP/ACP testing for the plan year, which box should I select if the current year testing method is used for either the ADP or ACP test, and the prior year testing method is used for the other?

Select the “Yes” or “No” checkbox based on whether or not the current year method is used in performing the ADP test. We expect to further clarify this question and the related instructions on the 2016 Form 5500-series returns.

3. For the compliance question that asks how the plan satisfies the coverage requirements under section 410(b), how should I answer if the plan meets exceptions to the coverage rules?

Leave the response blank (don’t choose any box) if the plan meets exceptions to coverage rules or if the plan is a non-qualified plan. The exceptions include any of the following:

1. The employer employs only highly-compensated employees (HCEs)
2. No HCEs benefited under the plan at any time during the plan year 3. The plan benefits only collectively-bargained employees 4. The plan benefits all non-excludable, non-highly compensated employees of the employer (defined in IRC Sections 414(b), (c), and (m)), including leased employees and self-employed individuals 5. The plan is treated as satisfying the minimum coverage requirements under IRC Section 410(b)(6)(C)

4. For the compliance question that asks whether the plan trust incurred unrelated business taxable income, when would I choose the “N/A” checkbox?

Check the “N/A” checkbox if the plan doesn’t have a trust, such as 412(e)(3) fully-insured plans or certain 403(b) annuity plans. See Publication 598 for the definition of “unrelated business taxable income.”

5. For the compliance question that asks whether in-service distributions were made during the plan year, what types of in-service distributions should be reported?

For the purpose of the 2015 Form 5500-series returns, only report:

• Hardship distributions from 401(k) plans; and • Distributions from defined benefit or money purchase pension plans to employees who:
• have attained age 62, and • weren’t separated from service when the distributions were made.

Don’t report any amounts from:

— Corrective distributions (such as excess deferrals, excess contributions, and excess aggregate contributions)
— Distributions under EPCRS — Deemed distributions — Direct rollovers of eligible rollover distributions
We expect to modify this question on the 2016 Form 5500-series returns.

6. Am I allowed to use the plan sponsor’s EIN in place of getting a trust EIN to answer the question on trust information?

No. You should use the trust EIN to report the information on the Form 5500-series returns. If there is no trust EIN, the EIN used on Form 1099-R and Form 945 may be used for this purpose. We encourage trustees to get a trust EIN from the IRS. If a trust’s EIN has been deactivated, the trustee can fax a request to the EP Entity Control Unit in Ogden, Utah at (801) 620-7116 to reactivate it.

7. For the compliance question that asks whether a plan has been timely amended for all required tax law changes, how should I answer this question if the plan sponsor has used the IRS Employee Plans Compliance Resolution System (EPCRS) to correct the failure to amend the plan for required law changes by the applicable deadlines?

Check “Yes” if the plan sponsor has used EPCRS to correct the failure to amend the plan for required law changes by the applicable deadline.

8. For the compliance question that asks for the date the last plan amendment/restatement for required tax law changes was adopted, which date should I enter for a plan that uses a pre-approved plan document and has adopted all required interim amendments but has not been restated for PPA by December 31, 2015?

Enter the most recent adoption date of the interim amendment (disregard any discretionary amendments) that complies with required law changes. A plan sponsor must adopt an interim amendment before the end of the plan’s remedial amendment cycle for a plan provision.

9. A multiple-employer plan may file one Form 5500 to report information about the entire plan. Does the IRS require responses to the IRS compliance questions at the participating-employer level or at the plan level?

Unless specified in the instructions, a multiple-employer plan generally reports information at the plan level on Form 5500 and should respond to the IRS compliance questions at the plan level.