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Information reporting penalty relief provided for certain employee benefit plans

May 13, 2014

Notice 2014-35, 2014-23 IRB

In a Notice, IRS has provided administrative relief from the penalties under Code Sec. 6652(d), Code Sec. 6652(e), and Code Sec. 6692 for a failure to timely comply with certain annual reporting requirements under Code Sec. 6047(e), Code Sec. 6057, Code Sec. 6058 , and Code Sec. 6059. This administrative relief applies to late filers that satisfy the requirements specified in the Notice and the Delinquent Filer Voluntary Compliance (DFVC) program administered by the Department of Labor (DOL) Employee Benefits Security Administration.

Background. Each employer that maintains a pension, annuity, stock bonus, profit-sharing, or other funded plan of deferred compensation or the plan administrator (within the meaning of Code Sec. 414(g)) must file an annual return reporting information about the qualification, financial condition, and operations of the plan. (Code Sec. 6058(a)) The forms required for this purpose are those in the 5500 series.

Plan administrators who fail to timely file Form 5500 series annual returns/reports can be subject to penalties under both Title I of the Employee Retirement Income Security Act of ’74 (ERISA) and the Code. The Secretary of Labor has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail or refuse to file complete and timely annual reports. In addition, IRS may impose penalties under Code Sec. 6652(e) ($25 for each day the failure continues, up to $15,000 per return or statement) against plan administrators and employers that fail to file complete and timely annual returns, as required under Code Sec. 6058 and Code Sec. 6047(e), with respect to employee stock ownership plans.

IRS may also impose penalties under Code Sec. 6652(d) and Code Sec. 6692 for failure to satisfy the reporting requirements of Code Sec. 6057 and Code Sec. 6059. Code Sec. 6652(d)(1) generally provides that in the case of any failure to file an annual registration statement under Code Sec. 6057(a), the late filer shall pay a penalty of $1 for each participant with respect to whom there is a failure to file for each day the failure continues, up to $5,000 for any plan year. Code Sec. 6652(d)(2) generally provides that in the case of any failure to file a notification of change of status under Code Sec. 6057(b), the late filer shall pay a penalty of $1 for each day the failure continues, up to $1,000 for each failure. Code Sec. 6692 generally provides that in the case of any failure to file an actuarial report required by Code Sec. 6059, the late filer shall pay a penalty of $1,000 for each failure.

The DFVC program was designed to encourage voluntary compliance with the ERISA annual reporting requirements by allowing plan administrators who fail to file a timely annual report to pay reduced civil penalties. In 2002, following the issuance of related DOL guidance, IRS issued Notice 2002-23, 2002-15 IRB 742, which provided that it will not impose penalties under Code Sec. 6652 and Code Sec. 6692 (as those sections relate to the filing of a Form 5500 series return) on a person who is eligible for and satisfies the requirements of the DFVC Program with respect to the filing of a Form 5500. DOL then updated the DFVC program in 2013 to require delinquent annual reports to be submitted electronically via the ERISA Filing Acceptance System (EFAST2).

Prior to the 2009 plan year, information required to be reported under Code Sec. 6057 regarding deferred vested participants was reported on Schedule SSA (Form 5500). As part of the transition to mandatory electronic filing, however, the Schedule SSA was replaced by Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits. The Form 8955-SSA is a stand-alone form that must be filed with IRS, but not DOL. In its 2013 update (above), DOL noted that filers cannot submit a Schedule SSA or Form 8955-SSA under the DFVC program to DOL, even for 2008 and prior plan years.

IRS relief for DFVC program participants. IRS announced in Notice 2014-35 that it will not impose penalties under Code Sec. 6652(d) and Code Sec. 6652(e) (as those sections relate to the filing of Form 5500, Form 5500-SF, and Form 8955-SSA) or under Code Sec. 6692 (relating to the filing of actuarial reports required by Code Sec. 6059) with respect to a year for which filing of such a form is required on a person who: (1) is eligible for and satisfies the requirements of the DFVC program with respect to a delinquent Form 5500 series return for such year; and (2) files separately with IRS, in the form and within the time prescribed by Notice 2014-35, a Form 8955-SSA with any information required to be filed under Code Sec. 6057 for the year to which the DFVC filing relates (to the extent that the information has not previously been provided to IRS).

Paper filing only. Although IRS generally encourages filers to file electronically whenever possible, relief is provided under Notice 2014-35 only if a Form 8955-SSA is filed on paper with IRS (including a fillable Form 8955-SSA completed online and then printed and filed on paper). In contrast, Form 5500 series returns must be filed electronically using EFAST2 in accordance with the requirements of the DFVC program. If a Form 8955-SSA is filed pursuant to Notice 2014-35, the filer must check the box on Line C, Part I (Special extension) of the Form 8955-SSA and enter “DFVC” in the space provided on Line C.

Filing deadline. Any Form 8955-SSA required to be filed with IRS pursuant to Notice 2014-35 must be filed on paper by the later of: (i) 30 calendar days after the filer completes the DFVC filing; or (ii) Dec. 1, 2014. This requirement applies with respect to any DFVC filing submitted through EFAST2 (generally, all DFVC filings after Dec. 31, 2009), regardless of whether the filing was submitted before the issuance of Notice 2014-35 (i.e., on May 9, 2014).

Illustration: If a DFVC filing for a delinquent 2008 Form 5500 was submitted in 2012 and information required to be filed under Code Sec. 6057 was never filed for 2008, a paper Form 8955-SSA must be filed with IRS for the 2008 plan year by no later than Dec. 1, 2014, to qualify for the relief provided under Notice 2014-35.

No separate application. The relief provided under Notice 2014-35 applies upon a late filer’s satisfaction of the conditions set out in it, and the late filer does not need to file a separate application for relief with IRS. Instead, IRS will coordinate with the DOL in determining which late filers are eligible for the relief.

No relief for non-ERISA filers. The relief under Notice 2014-35 is available only to the extent that a Form 5500 series return is required to be filed under Title I of ERISA. Therefore, for example, Form 5500-EZ and Form 5500-SF filers for plans without employees are not eligible. In Rev Proc 2014-32, 2014-23 IRB, IRS has established a temporary pilot program to afford penalty relief under the Code for delinquent Form 5500 series filers that are not covered under Title I of ERISA (see ¶ 22 for more details).

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