Compliance February 4, 2015

IRS Shares Tips for Avoiding Form 5500 Scrutiny

The IRS revealed Form 5500 errors it found during various compliance projects, which could cause a plan to be selected for a compliance check.
Reported by

The Internal Revenue Service (IRS) says in many of its Employee Plans Compliance Unit (EPCU) projects, it finds plan sponsors enter incorrect information on their Form 5500 series returns or information reports.

The agency says it uses information on Form 5500 returns and reports to select cases for compliance checks, and entering incorrect information on the return or report, or leaving a field blank field when there should be an entry, increases the likelihood that a plan will be selected for an EPCU compliance check.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Examples of the types of errors found during recent projects include:

  • Plan Participants Project – The IRS found sponsors incorrectly entered 0 for the number of participants or left that line item blank.
  • Termination Project – Plan sponsors incorrectly marked their 5500 return to show they i) adopted a resolution to terminate the plan when they had not; ii) distributed all plan assets but did not mark the return as the final return; iii) claimed to have terminated the plan when it was not fully terminated; or iv) distributed all plan assets but did not mark zero assets at the end of the plan year. 
  • Fraud Project – Plan sponsors incorrectly entered the fidelity bond amount or gave inaccurate/incomplete answers on questions about loss caused by fraud or dishonesty.
  • Hacienda Project – Plan sponsors incorrectly entered the Puerto Rico-related pension feature code 3J on their 5500 return when they should have entered 3C.
  • Frozen Plans Project – Plan sponsors entered pension feature code 1l, frozen defined benefit plan, on their 5500 return when their plan was not a defined benefit plan or frozen.

The IRS also found, during its Excess Deferral Project, that 403(b), 457 or non-qualified plan elective deferrals were frequently and incorrectly coded as 401(k) elective deferrals (box 12, code D) on W-2, Wage and Tax Statements. During its Simplified Employee Pension (SEP) Plans project, the IRS found incorrect reporting of rollover contributions as SEP contributions on Form 5498, IRA Contribution Information, in box 8 instead of box 2.

The IRS says plan sponsors that prepare the Form 5500 return or information report themselves should look at each line item and related instructions with fresh eyes. It warns plan sponsors not to copy line item entries from year to year without reviewing them carefully to ensure that they did not make an entry on the wrong line item, put an entry in a wrong box, leave a line blank that needs an entry, or use an incorrect code.

When a third party prepares the Form 5500 return, plan sponsors should take time to review it and match answers to the form’s questions. The IRS recommends making sure providers have administrative procedures in place to prevent mistakes on the 5500 return and information reports. If a plan sponsor finds errors on a return or information report, it should fix them promptly by amending the return or filing a corrected information report.

More information is here.

Data & Research February 4, 2015

Adviser Needs Are Influencing Asset Management Industry

A new report from Kasina finds institutional asset managers, fund providers and insurers view the financial advisory industry as an area with strong growth potential.
Reported by

This is a positive development for advisers, both retail and retirement specialists, according to Kasina. The report, “Growing Sales and Loyalty With the Advisor Customer Journey,” is targeted at the asset management industry, but it contains some important insights for plan advisers.

Notably, the report predicts asset managers will increasingly compete for adviser-mediated business in the coming years. This in turn will create a solutions-rich environment that could make it easier for advisers to effectively service their own clients by leveraging advanced support from asset managers and fund providers.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Kasina says asset managers that want to generate more sustainable and profitable growth in the coming years are focusing on the personalized support experience financial advisers want—and increasingly expect. Researchers suggest that asset managers already offer and develop investing solutions tied to advisory service models, and that advisers should anticipate more options when choosing platforms, investments and support tools. While generally a positive development for advisers and their clients, the rush of new products and services could challenge adviser due diligence and decisionmaking, Kasina warns. 

Asset managers, exchange-traded fund (ETF) providers and insurers are reacting to this pressure by delivering a personalized customer experience for advisers across all touch points, Kasina says. Researchers call this “defining the customer journey.” Unlike many types of business-to-business customers, financial advisers are almost always in “buying mode,” Kasina explains. Therefore, the bulk of the adviser’s customer journey is spent in the decisionmaking and investment evaluation process. Top-performing asset managers are folding this outlook into their efforts to gain adviser-intermediated business, Kasina says.

Given all this, the report suggests, advisers will likely see ongoing evolution in tools designed to support portfolio monitoring, investment universe exploration and efficient asset control/trade execution.

More information on this report and other Kasina research is here. 

«