Compliance November 14, 2014

Form 5500 Precision Is All in the Details

Sometimes, Form 5500 errors can come down to something as simple as a single number. Here are some goofs for retirement plan advisers to keep an eye out for.
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“It’s a good idea to review,” Mike Webb, vice president of Cammack Retirement Group, tells PLANADVISER. The Form 5500 is complicated, and requires a full audit, which is also complicated. Webb recommends plans work with a trusted adviser to review the document before submitting it. Sometimes the plan sponsor picks up an irregularity; sometimes the adviser does. Webb says it is possible for either to find a problem area, and mistakes are common. “Fifty percent of the time, I find a mistake,” he says.

They sound simple, but they are common, Webb says. Especially common: a nonmatching number of participants from the previous year. Every year, the form asks two questions: the number of participants at the beginning of the year, and the number at the end of the year. The year-end number of participants should match the number at the beginning of the next year, Webb says, but a lot of times this number does not match up. This is often because the plan sponsor didn’t bother to check the previous year and reconcile, Webb notes. The Department of Labor (DOL) does actually investigate these numbers, he warns.

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Sometimes the plan sponsor has the wrong number of participants on the form. The reason? “A lot of people don’t get the employer contribution right away, but they can make their own contributions,” Webb explains. The form asks the plan sponsor to count everyone eligible to make contributions whether they do or not. Counting just the employees who are actually contributing to the plan is a very common mistake, he says, for 403(b) plans as well as 401(k) plans.

Finally, Webb says, every plan has its own plan number. “Most plan sponsors assign it as 001, 002, 003 if you have multiple plans,” he says. However, over time, plan sponsors may forget that a number has been used for a previous plan—and the same plan number cannot be used on different plans, which a sponsor that froze a plan could be tempted to do. The result would be that the DOL thinks the old plan is being resurrected, and the plan sponsor would have to explain why it is filing under this plan.

For plan sponsors with multiple plans that want to create new plans, Webb recommends making the number one digit higher than the last number used. “Always go up a number,” he says. “And sometimes the recordkeeper puts the wrong number on the form, so always check that number.”

Products November 14, 2014

Legg Mason Unveils Large Cap Mutual Fund

The Legg Mason BW Dynamic Large Cap Value Fund utilizes a dynamic shifting tool and a proprietary quantitative strategy.
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Available in institutional shares, the fund’s broad objective is to provide long-term capital appreciation by quantitatively investing in U.S. equities. Three factors—valuation, quality and sentiment—drive the quantitative focus of the fund and its underlying strategy.

The proprietary blend is used to identify stocks that have the potential to deliver the strategy’s dynamic shifting tool, which Legg Mason says is unique in the marketplace. The tool adjusts the portfolio to favor deeper value stocks when the model indicates that valuation dispersion has peaked and begun to narrow. When valuation dispersion has troughed, the tool shifts the portfolio more closely to the index’s valuation. This proprietary blend of quantitative selection and dynamic shifting seeks to both mitigate downside volatility and potentially enhance long-term returns, the firm says.

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BW Dynamic Large Cap Value Fund (LMBGX) will be sub-advised by the diversified value equity team of Brandywine Global Investment Management LLC. Michael J. Fleisher is co-portfolio manager.

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