If you were planning to answer those new “optional” compliance questions the IRS included on Form 5500, you’ll want to hold off.
That’s because the agency just reversed course on its initial instructions to employers about the Form 5500 changes.
The IRS is now specifically saying that “plan sponsors should skip these questions.”
Mixed message
If you’re unfamiliar with the changes, here’s some background: A little while back, the IRS decided to include some new compliance questions for the 2015 plan year.
Along with the announcement, the agency also released an FAQ guide to the compliance questions and said that answering the questions is optional – for now. Despite technically being voluntary, the IRS seemed to be sending the message that it would behoove firms to answer the questions.
In fact, the IRS itself said, “we strongly encourage you to answer them.”
New instructions from the feds, however, now say:
“New Part VII (IRS Compliance Questions) was added to Schedule R for purposes of satisfying the reporting requirements of section 6058 of the Code. The IRS has decided not to require plan sponsors to complete these questions for the 2015 plan year and plan sponsors should skip these questions when completing the form.”
The IRS also told employers to skip new financial information reporting — Lines 4o, 4p, 6c and 6d that were added to Schedules H and I — on the 2015 Form 5500.
Testing methods, timeliness
The new Form 5500 questions dig deeper into compliance issues and ask plans about:
- how they satisfy discrimination testing
- methods for test requirements – whether the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) test is used, and
- the timeliness of plan amendments.
Employers should be aware that answering these questions could bring to light compliance issues they may not have been aware of and could lead to follow up from the IRS.
In addition, Schedule H and I of the Forms will ask for more detailed info on plan leakage.
Example: Schedule H previously only asked plans to report on “distributions.” Now, they’re being asked for a more precise definition. One reason the agency is interested in more info in the area: It believes this info – especially leakage from hardship distributions – will help its understanding of retirement unpreparedness.
Employers with at least 250 government forms (W-2s, 1099s, etc.) must file Form 5500 electronically.
However, smaller firms can file using the paper-only Form 5500-SUP.
