In our continuing series of FAQs on EFAST2, we are addressing the issues and procedures with which 5500 preparers and plan sponsors will need to familiarize themselves to make the transition to electronic filing. In connection with the transformation to mandatory electronic filing, the DOL introduced a short Form 5500 – the Form 5500-SF – for certain small retirement and welfare plans. The new form should simplify the reporting requirements for eligible plans because it is only two pages long and does not require any schedules unless the plan is a defined benefit plan or a money purchase plan amortizing a minimum funding waiver. In the following FAQs, we address questions and issues relating to the Form 5500-SF.

What is the Form 5500-SF?

The Form 5500-SF, Short Form Annual Return/Report, is a simplified annual reporting form for use by certain small pension and welfare benefit plans.

What conditions must a plan satisfy in order to file a Form 5500-SF?

If a plan is required to file a Form 5500, the employer may file the Form 5500-SF instead of the Form 5500 if the plan satisfies all of the following conditions:

1. The plan (a) covered fewer than 100 participants at the beginning of the plan year 2009, or (b) was eligible to and filed as a small plan for the 2008 plan year and did not cover more than 120 participants at the beginning of plan year 2009;
2. The plan did not hold any employer securities at any time during the plan year;
3. At all times during the plan year, the plan was 100% invested in certain secure, easy to value assets that satisfy the definition of “eligible plan assets," (discussed below) such as mutual fund shares, investment contracts with insurance companies and banks valued at least annually, publicly traded securities held by a registered broker dealer, cash and cash equivalents, and participant loans;
4. The plan is eligible for the waiver of the annual examination and report of an independent qualified public accountant (but not by reason of enhanced bonding); and
5. The plan is not a multiemployer plan.

What conditions must a one-participant plan satisfy in order to file a Form 5500-SF?

A one-participant plan that satisfies the following conditions is eligible to file a Form 5500-SF, even though the plan does not satisfy the conditions described above:

1. The plan is a “one-participant plan." A one-participant plan is a plan that covers an individual (or individual and his/her spouse) who owns the entire business (incorporated or unincorporated), or the plan covers one or more partners (or partner(s) and spouse(s)) in a partnership.
2. The plan does not provide benefits for anyone except the owner, or the owner and his/her spouse, or one or more partners and their spouses.
3. The plan covers fewer than 100 participants at the beginning of the plan year.

Is a one-participant plan filing a Form 5500-SF exempt from some of the questions?

Yes. One-participant plans do not need to complete the following questions on Form 5500-SF:

• Line 6a and b (eligibility to file form)
• Lines 8b-8j (income and expense, other than contributions)
• Line 9b (welfare codes)
• Line 10 other than 10g (compliance questions; the plan must state whether there are plan loans)
• Lines 13-c (terminations and transfers)

May an employee stock ownership plan (ESOP) or a Direct Filing Entity (DFE) file a Form 5500-SF?

No. ESOPs and DFEs may not file Form 5500-SF.

Is a Form 5500-SF subject to the public disclosure requirement?

Yes. Because of the public disclosure, some one-participant plans will decline to file a Form 5500-SF, preferring to file Form 5500-EZ (which is not currently available).

What schedules must a plan sponsor attach to a Form 5500-SF?

Unless the plan is a defined benefit plan or a money purchase plan amortizing a minimum funding waiver, a plan filing a Form 5500-SF will not include any schedules. If the plan is a defined benefit plan, the Form 5500-SF will include a Schedule SB. A money purchase plan amortizing a minimum funding waiver will include a Schedule MB. A one-participant plan that is subject to the requirement to complete a Schedule SB (or MB) and that elects to file a Form 5500-SF, completes the Schedule SB (or MB) but does not include the schedule with its filing. Instead, the employer retains a signed copy with its files.

Are there any attachments to a Form 5500-SF?

Yes. However, the Form 5500-SF only requires attachments if the plan is a defined benefit plan or a money purchase plan amortizing a minimum funding waiver. In such a case, the plan would include any attachments required for the Schedule SB (or MB). An employer could (but is not required to) include other attachments. For example, an employer may want to include a “reasonable cause" attachment explaining a late filing.

May a 403(b) plan file a Form 5500-SF?

Yes. A 403(b) plan, other than a church plan, must limit its investments to annuity contracts and custodial accounts invested in mutual funds. Since annuity contracts and mutual funds are eligible plan assets, a small 403(b) plan (fewer than 100 participants) can file a Form 5500-SF.

May a 403(b) plan rely on the 80/120 rule to qualify as a small plan for the 2009 plan year.

If a 403(b) plan would have been eligible to file as a small plan under the 80/120 rule in 2008 (i.e., the plan was eligible to file in the previous year under the small plans requirements and has a participant count of less than 121 at the beginning of the 2009 plan year), then it can rely on the 80/120 rule for the 2009 plan year.

May a welfare plan file a Form 5500-SF?

Yes. However, most small welfare plans will qualify for an exemption to filing a Form 5500. Therefore, most welfare plans will not need to file any Form 5500, including a Form 5500-SF.

For purposes of filing a Form 5500-SF, what are eligible plan assets?

Yes. In order to be eligible to file a Form 5500-SF, all of the plan’s assets must be eligible plan assets.

Eligible plan assets are assets that:

1. have a readily determinable fair market value,
2. are not employer securities, and
3. are held or issued by one of the following regulated financial institutions: a bank or similar financial institution (e.g., banks, trust companies, savings and loan associations, domestic building and loan associations, and credit unions); an insurance company qualified to do business under the laws of a state; registered broker-dealers under the Securities Exchange Act of 1934; investment companies registered under the Investment Company Act of 1940; or any other organization authorized to act as a trustee for IRAs under Code §408.

Are participant loans eligible plan assets?

A participant loan satisfying the prohibited transaction requirements of ERISA §408(b)(1) is an eligible plan asset whether or not it is a deemed distribution. Accordingly, either a participant-directed or a general trust fund loan could qualify as an eligible plan asset for purposes of the Form 5500-SF.

If a plan has contribution receivables, may it file a Form 5500-SF?

Yes. The instructions indicate that an employer may use cash, modified cash or accrual basis to complete the Form 5500-SF. Furthermore, the form provides a line for contribution receivables.

Does an employer report delinquent deposits of elective deferrals (401(k) or 403(b)) or loan repayments on a Form 5500-SF? Does the Form 5500-SF require an attachment explaining the correction status of the delinquent contributions? Do delinquent deposits disqualify the employer from filing a Form 5500-SF?

The employer reports delinquent deposits on line 10 of the Form 5500-SF. There is no required attachment. However, an employer may include an attachment explaining its correction if the employer wishes to do so. Delinquent contributions do not disqualify the employer from filing a Form 5500-SF.

Form 5500/EFAST2 – 35 cities, March – May
Because of the introduction of EFAST2, it is predicted that Form 5500 amendments may dominate 2010 filings. SunGard’s Form 5500/EFAST2 workshop can show you how to file automatically and help avoid filing the same Form 5500 twice. This workshop can help you prepare for this transitional year.