Compliance June 20, 2011

SEC Provides Guidance on Swaps Requirements

The Securities and Exchange Commission (SEC) has come out with guidance on the timing of new requirements regarding security-based swaps under the Dodd-Frank legislation.
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According to the SEC, the guidance makes clear that substantially all of Title VII’s requirements applicable to security-based swaps will not go into effect on July 16, the effective date of Title VII under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Commission’s action also grants temporary relief from compliance with most of the new Exchange Act requirements that would otherwise apply on July 16. 

In addition, to enhance the legal certainty provided to market participants, the SEC said that its action provides temporary relief from Section 29(b), which generally provides that contracts made in violation of any provision of the Exchange Act shall be void as to the rights of any person who is in violation of the provision. 

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“This is the first step in a series of actions the SEC intends to take in coming days to address effective date issues,” said Robert Cook, Director of the SEC’s Division of Trading and Markets. “Temporarily and to the extent appropriate, our goal is to preserve the pre-Dodd-Frank Act legal framework until we complete the rule-making tasks and develop a workable implementation plan.” 

The anti-fraud and anti-manipulation prohibitions of the federal securities laws will continue to apply to security-based swaps after July 16.

Title VII is the portion of the Dodd-Frank Act that establishes a comprehensive framework for regulating over-the-counter derivatives. In particular, it authorizes the SEC to regulate “security-based swaps” while also authorizing the CFTC to regulate other swaps. The portion of Title VII referred to as Subtitle B, which addresses the new regulatory regime for security-based swaps, generally will take effect on July 16 (360 days after the date of the Dodd-Frank Act’s enactment).

After proposing all of the key rules under Title VII, the SEC said it intends to consider seeking public comment on a detailed implementation plan that will permit a rollout of the new securities-based swap requirements in an efficient manner while minimizing unnecessary disruption and costs to the markets.

Although the guidance and temporary relief are now in effect, the Commission is seeking input from the public on today’s actions. Public comments should be received by July 6, 2011. More information is available at http://www.sec.gov/news/press/2011/2011-130.htm.

Compliance June 20, 2011

The Wait is Over for 2010 Form 5500 EZ

Those who have been waiting for the new Form 5500 EZ need wait no longer.
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As for what’s new, the Internal Revenue Service (IRS) notes that the Pension Protection Act of 2006 established rules for a new type of pension plan, an “eligible combined plan,” effective for plan years beginning after December 31, 2009.  Those plans consist of a defined benefit plan and a defined contribution plan that includes a qualified cash or deferred arrangement under section 401(k), with the assets of the two plans held in a single trust, but clearly identified and allocated between plans.

To be eligible for the combined plan design, the IRS says employers must have employed an average of at least 2 but not more than 500 employees on each business day during the calendar year preceding the plan year as of which the eligible combined plan is established. An employer must have at least 2 employees on the first day of the plan year, going on to note that, “because an eligible combined plan includes both a defined benefit plan and a defined contribution plan, the Form 5500-EZ filed for the plan must include all the information that would be required for either a defined benefit plan or a defined contribution plan.”

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To reduce the possibility of correspondence and penalties, the IRS reminds filers:

  • Use the online, fillable 2010 Form 5500-EZ on the IRS website. Complete and download the form to your computer to print and sign before mailing.
  • Or, use the official printed paper Form 5500-EZ obtained from the IRS. Complete the form by hand using only black or blue ink. Be sure to enter your information in the specific line fields provided, sign, and date the form before mailing.
  • Or, use approved software, if available.
  • Do not use felt tip pens or other writing instruments that can cause signatures or data to bleed through to the other side of the paper. One-sided documents should have no markings on the blank side.
  • Paper should be clean without glue or other sticky substances.
  • Do not submit extraneous information such as arrows or notes on the form.

The IRS also notes that a one-participant plan that is eligible to file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, may elect to file Form 5500-SF electronically with the computerized ERISA Filing Acceptance System (EFAST2) rather than filing a Form 5500-EZ on paper with the IRS.

Questions regarding the form can be addressed via the IRS Help Line at 1-877-829-5500, Monday through Friday.

The form is available at http://www.irs.gov/pub/irs-pdf/f5500ez.pdf

More information is available at http://www.irs.gov/instructions/i5500ez/ar01.html

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