FIS Relius
Revised Schedule SSA Reporting Requirements 3/22/2005
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As practitioners ready themselves for the 2004 Form 5500 filing season, they should be aware of changes to Schedule SSA and its instructions that will impose significant new burdens on both plan sponsors and practitioners.

The Schedule SSA requires a plan administrator to report participants with deferred vested benefits (e.g., participants who did not consent, or under the terms of the plan are not entitled, to an immediate distribution). The DOL forwards to the Social Security Administration (SSA) the information reported on the Schedule SSA. The SSA, in turn, uses the information to remind a participant when he/she applies for social security benefits of the possible existence of retirement benefits at the former employer’s plan. The reminder letter can be quite useful for a participant who may have forgotten about a benefit. However, if the plan already has distributed the participant’s benefit, the letter may only serve to confuse the participant and impose an unnecessary research burden on the employer. The confusion often occurs because the employer did not report the subsequent distribution of the deferred vested benefit. In filing years prior to 2004, the Schedule SSA instructions did not require an employer to report subsequent distributions and transfers. Since many practitioners did not maintain a database of participants who had been reported on a Schedule SSA, many practitioners exercised the option of not reporting distributions and transfers. Although failing to report subsequent distributions might lead to confusion in future years, practitioners had to weigh the immediate burden of determining changes in previously reported information against the possibility of a future burden. Generally, practitioners resolved these competing interests in favor of completing the Form 5500 quickly.

Example: Bill terminated employment in 1990 with an account balance in the SDS 401(k) Plan. Bill declined to consent to the distribution and SDS reported the deferred vested benefit on the 1991 Schedule SSA. In 1994, Bill requested and received his account balance. SDS did not report the distribution on the Schedule SSA. In 2003, Bill filed for social security benefits and received a letter from the SSA about the deferred vested benefit. Bill contacted SDS because he could not remember whether he had received the benefit. SDS spent several hours reviewing its archived records to demonstrate that Bill was no longer entitled to a benefit.

Code D Participant
The SSA now recognizes that many of the letters they send to participants are unnecessary and result in confusion because the benefits already have been distributed. Therefore, the SSA has revised the instructions to the Schedule SSA to require the plan administrator to provide the SSA with updated information. Specifically, if a participant who was previously reported on a Schedule SSA is no longer entitled to the benefit (i.e., the participant has received his/her benefit), the plan must report the change on the Schedule SSA with a code D. The SSA then will not send a letter regarding the deferred vested benefit when the participant applies for social security benefits.

Example: Mary terminated employment in 1999 and decided to leave her $20,000 account in the SDS 401k Plan. During 2004, Mary elected and received her plan balance. SDS must include Mary on line 4 of the Schedule SSA with a code D. The code D will notify the SSA to cancel the deferred vested benefit previously reported to the SSA. The benefit to the plan is that it will not need to be concerned about proving that it already has distributed the reported deferred vested benefit.

Code C Participant
If a plan is the recipient of a transfer of a benefit from another plan that previously was reported as a deferred vested benefit, the transferee plan (not the transferor plan) must report on the Schedule SSA (with a code C) that a new plan is holding the deferred vested benefit. The new instructions to the Schedule SSA also now require a plan administrator to report transfers into the plan of previously reported deferred vested benefits. Of the new requirements, this may be the most difficult requirement to effect because it may involve information to which the employer does not have access without a specific request. As with the code D participant, the requirement to report the transfer was optional in previous years. Since the requirement was optional and the information was hard to come by, many employers opted not to report the transfers on the Schedule SSA.

Example: Corporation X acquires the stock of corporation Y during 2004. As part of the acquisition, X merges the Y plan into the X plan. Plan X must include on its Schedule SSA any Y participant who had deferred vested benefits on a Schedule SSA of the Y plan.

Line 4 Attachments
To improve the efficient processing of the information on the Schedule SSA, the DOL also eliminated a practitioner’s ability to report participants on an attachment. Practitioners use line 4 of the Schedule SSA to report not only deferred vested benefits but also changes. Unfortunately, Schedule SSA only has room to report 4 participants. Previously, practitioners used attachments to report additional participants (e.g., Excel spreadsheet). The use of the attachment facilitated the reporting of additional participants. However, the attachment slowed down the processing of this information by the DOL. Therefore, commencing with the 2004 Schedule SSA, practitioners no longer may use attachments. The DOL now requires a practitioner to use additional pages 2 to report more than 4 participants. For plans with a significant number of participants to report, the new requirement will force practitioners to expend a significant amount of time keying the participant information onto the Schedule SSA. A feature available on some Form 5500 software programs may reduce the time needed to comply with the change by allowing the practitioner to import information from a spreadsheet onto line 4.

The IRS may impose a penalty of $1/day for each participant with deferred vested benefits not reported on a Schedule SSA (not to exceed $5,000). Code §§6652(d)(1) and 6057 (and the regulations) have not been modified to reflect the changes in the instructions. Although we would not recommend ignoring the change in the instructions, the IRS, apparently, would not have the authority to impose any penalty for failing to report a code C or D participant.

Although the new Schedule SSA will assist the SSA in straightening out its records and may provide some long term benefits to the employer (i.e., not needing to prove it already has distributed the deferred vested benefits), the new instructions will impose a significant new burden. To minimize this burden in the future, employers will need to maintain a database of participants reported on the Schedule SSA. Furthermore, when a plan is involved in a transfer or merger, employers will need to request as part of the merger or transfer transaction the records of participants previously reported on the Schedule SSA. However, in the interim, employers will need to scour past records to determine if a current distributee was previously reported on a Schedule SSA. If past records are not available or would be too time-consuming to review, the employer might make an assumption that anyone who terminated employment before a particular date was reported on a Schedule SSA and include those participants on the Schedule SSA if they receive a distribution. For example, any participant in a calendar year plan who received a distribution in 2004 and who terminated employment prior to 2003 should have been reported on the Schedule SSA. Therefore, the employer should include such employees on Schedule SSA with a code D. If the participant mistakenly was not reported on a prior Schedule SSA, unnecessary additional information is unlikely to generate any response from the SSA.

SunGard Corbel will present a Form 5500 Workshop commencing in mid-April that will provide a line-by-line explanation of the Form 5500 and the Schedules. The Workshop will explain the changes and provide answers to your difficult filing questions.