FIS Relius
5500 Filed Timely but Processed Late 8/19/2010
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Under EFAST2, a preparer must file the 5500 electronically no later than midnight (using the time zone of the plan administrator) of the day of the filing deadline (e.g., August 2, 2010 for a calendar year plan). Some preparers have filed a 5500 shortly before the deadline but because the filing was not processed by midnight or initially was not processed at all, the DOL considers the filing late. In discussing the matter with the DOL, the DOL has confirmed that it considers the filing late and that the government may generate an automatic penalty letter.

The following situations give rise to a filing that is processed late - The preparer or plan sponsor transmits the 5500 timely (e.g., 11:50 p.m., August 2, 2010) but:

  1. The DOL does not process the filing until after midnight.
  2. The transmission fails. By the time the preparer or plan sponsor resubmits, the filing is processed after the deadline.
  3. The filing is unprocessable. The preparer must determine why it was unprocessable, correct the problem and retransmit the filing, albeit after the deadline.

Note: The preparer should save a copy of the transmission report demonstrating that the filing was filed timely, as well as any report showing a transmission failure or an unprocessable submission. The reports will be valuable if the preparer is required to explain a delinquent filing.

If a preparer is confronted with any of the situations described above, the preparer has three options:

  • Roll the dice. Assume the DOL and IRS likely will be very lenient during the initial year of EFAST2 considering the significant change in the 5500 filing procedures. Furthermore, the DOL and IRS may not penalize a filing that is only a day or two late. If the DOL or IRS sends a penalty letter, the preparer explains the transmission problems and requests an abatement of the penalties (i.e., second option).
  • Beg for mercy. Under situations 2 or 3, the preparer could attach a request for abatement of penalty with a pdf copy of the transmission reports. Note: the letter should request an abatement of both the DOL and IRS penalties (if applicable).
  • DFVC. File under the DFVC program. If the preparer uses the new electronic DFVC application, the process takes only minutes, and if the filing is only a day late, the penalty is $10. Note: The DFVC approach is not only the safest approach but probably the most efficient approach. A preparer would spend more than $10 worth of time preparing a letter requesting an abatement of penalties.

Preparers are well advised to set artificial deadlines (e.g., October 8, 2010) in advance of actual due dates (such as the October 15 extension deadline). The DOL expects a tremendous number of filings on October 15, 2010. Preparers may face a variety of processing issues on that date. Furthermore, we expect the DOL will be unable to assist all filers who are having problems on that date. A preparer who gives himself/herself some cushion will have the requisite time to resolve any filing problems and not have to rely on the good graces of the government or pay DFVC penalties.

Advanced Pension Conference – Chicago, August 30 – September 1, 2010
The new fee disclosure regulations that the DOL has issued this summer will impact most retirement plans and will require revisions to service provider agreements with the plan. The Chicago Advanced Pension Conference will provide practical insight into the new regulations. The conference will also address other topics such as Designing fee agreements, Schedule C case studies, Troubleshooting EFAST2, Hot Topics in Plan Corrections, and Cash Balance Plans for DC Practitioners. Click here for more information.

ERISA Workshop 2010 to Focus on New Service Provider Regulations
The focus of this year’s ERISA Workshop is indeed on ERISA, as the workshop will look in-depth at the new regulations mandating disclosure from service providers to plan administrators. We’ll show you how to know if you are subject to the new rules and what you must do to comply (and what happens if you don’t). We’ll also analyze the rules in terms of modern business practices and revenue models. Of course, this seminar will also keep you up-to-date on all other recent changes in tax rules, and important developments affecting qualified plans. With the new service provider regulations, this seminar is a “must attend" for all those servicing retirement plans. Registration is now open, go here.