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Newsletter
October
2005 Volume
22 - Number 3
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This
newsletter is addressed to our clients their attorneys, accountants and other
professional advisors. Citations may be included for those who want to refer
directly to the source material. IN THIS ISSUE:
HOW LONG SHOULD PLAN RECORDS BE KEPT? - This is one of a plan sponsors’ most frequently
asked questions. Naturally there is no one simple answer. DEPARTMENT OF LABOR (DOL) PROPOSAL MANDATES
ELECTRONIC FILING OF 5500 FORMS BY 2007 FILING YEAR - Recently, the DOL published a proposed rule change
which would require all Forms 5500 filed under Title I of ERISA for years
beginning on or after January 1, 2007, be filed electronically FLEXIBLE SPENDING ACCOUNTS MODIFIED TO ALLOW EXTRA
TIME TO “USE IT OR LOSE IT” - Until
now, a participant was required to incur these expenses within the plan year,
and if he or she did not incur expenses equal to the amount set aside in the
FSA, the balance was forfeited. |
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HOW LONG SHOULD PLAN RECORDS BE KEPT? This is
one of a plan sponsors’ most frequently asked questions. Naturally there is
no one simple answer. ERISA
prescribes a six year requirement for retention of some records, but another
section of ERISA indicates that some documents must be maintained as long as
there is a possibility they may be needed to determine participant
eligibility or the amount of a participant’s benefit. Moreover, in the real
world, the absence of documents needed in the event of litigation can result in
unfortunate consequences. ERISA
Section 107 provides that anyone who must file a Form 5500 or certify
information under Title I of ERISA must maintain sufficient records to verify
the information contained therein. These must be kept for a period of six
years after the filing date of the report, or the date the report would have
been filed if there were a filing exemption. This requirement would apply to
plan sponsors, administrators and service providers who are required to
certify information contained in a report. ERISA
Section 209 requires an employer to maintain the records needed to determine
the benefits that are or may become due each employee. The Department of
Labor (DOL) issued proposed regulations in 1980 which provided that
individual benefit records must be kept as long as a possibility exits they
may be relevant to the calculation of a benefit for a participant or
beneficiary [29 CFR 2530.209-2(d)].
Although DOL subsequently indicated that these would be withdrawn and
revised regulations would be forthcoming, to date, none have been published.
Therefore employers should assume the records must be maintained
indefinitely, either in their original form or electronically. ERISA’s
predecessor, the Welfare and Pension Plan Disclosure Act contained a
provision similar to ERISA Section 107, and a 1963 bulletin issued with
respect to the types of records to be maintained under that section provided
that such records should include (but are not limited to) resolutions and
matters relating to the plan for which a description or annual report may be
required to be filed, journals ledgers, checks, invoices, bank statements,
contracts, agreements, vouchers, worksheets, receipts, claim records and
payrolls which would support information required in any report under the
Act. In a 1983
letter to a plan administrator who had requested information on the record
maintenance requirement, the DOL stated that the 1963 bulletin should serve
as a guide in determining what records should be retained for ERISA Section
209 and that the following records were required to be retained for the six
year period under Section 107: · Copies of
Form 5500, related schedules and reports · Claim
Files · Pension
and medical claim checks · Contractor
report forms, employer reporting and remittance forms · Reciprocity
transfer requests and transmittals ·
Eligibility reports Further
DOL stated that the records applicable to Section 209 might include the
following: · Eligibility
record cards · Individual
census data · Employee
work history · Contractor
report forms · Employer
reporting form and remittance forms ·
Reciprocity requests and transmittals DOL did
issue final regulations establishing a safe harbor for the use of electronic
records to satisfy the requirements of Sections 107 and 209. Effective as of
October 9, 2002, these rules set forth conditions for ensuring continuation
of the accuracy and accessibility of plan data that has been transferred to
electronic form. This permits a plan to dispose of original paper records
that have been transferred to an electronic recordkeeping system that would
constitute a duplicate or substitute record under the plan’s terms and
federal or state law (29 CFR Section 2520.107-1). The
Pension Benefit Guaranty Corporation (PBGC) requires each sponsor or
administrator of a terminated defined benefit pension plan, whether a
standard or distress termination, must retain all records needed to show
compliance with the termination provision of ERISA section 4041 for six years
following the date when the post-distribution certificate is filed with the
PBGC (29CFR Section 4041-5). |
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DEPARTMENT OF LABOR (DOL) PROPOSAL MANDATES ELECTRONIC FILING OF 5500
FORMS BY 2007 FILING YEAR Recently,
the DOL published a proposed rule change which would require all Forms 5500
filed under Title I of ERISA for years beginning on or after January 1, 2007,
be filed electronically [70Fed.Reg. 51542 (8/30/05)]. If this rule is made
final, no paper forms of any kind would be accepted and all filings would be
submitted via the Internet. The DOL
believes the change will result in reduced filer errors, reduced
correspondence and lower potential for filer penalties, more timely data for
public disclosure and enforcement, and enhanced protection for participants
and beneficiaries. Moreover, it is their opinion that the new system will
result in lower annual report processing costs for the government and for
plan sponsors. The DOL
is aware that certain problems exist with regard to electronic signatures, attachments
and attestations provided by third parties such as accountants and actuaries.
Also, some of the 5500 filing is controlled by the IRS, which does not have
authority to mandate electronic filing, so currently the proposal is not
applicable to those Schedules under IRS control. It is expected that the
agencies will resolve these issues before implementation of any new program. The
current proposal is not intended to be the actual system that will be used.
It does indicate the following features that DOL expects will be included in
the final program: ·
The Internet will be the sole medium for transmission of
all filings and the system will incorporate immediate validation and accuracy
checks. ·
Plan sponsors will be required to register for a secure
filing account. ·
The system will allow plan administrators or return/report
preparers to input data and complete and submit filings on an individual
plan-by-plan basis. Plan
sponsors will continue to be required to maintain a fully signed paper copy
of the filing with the permanent plan records. Electronic filing will
eliminate paper on the DOL side, but not on the plan practitioners’ and plan
sponsors’ end. The
DOL does not anticipate that there will be any filing fees charged by the
government for processing e-filed forms under the new system. |
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FLEXIBLE SPENDING ACCOUNTS MODIFIED TO ALLOW EXTRA TIME TO “USE IT OR
LOSE IT” Flexible
Spending Accounts (FSAs) in Cafeteria Plans (Section 125 Plans) allow
participants to use pre-tax funds to pay unreimbursed medical expenses for
participants and their dependents. Until now, a participant was required to
incur these expenses within the plan year, and if he or she did not incur
expenses equal to the amount set aside in the FSA, the balance was forfeited.
This is referred to as the “use it or lose it” rule. The employer retained
the amount forfeited; it could not be returned to the employee who failed to
use the full amount in his or her FSA. Notice
2005-42 issued May 18, 2005 allows employers to modify FSAs in Cafeteria
Plans to extend the time for incurring expenses for health and dependent care
up to 2˝ months after the end of the plan year. If the modification is to be
adopted for the current plan year (as well as future plan years), it must be
adopted before the end of the current plan year. The grace period, if
provided, must apply to all participants and can extend to a maximum of the
15th day of the third calendar month after the end of the plan
year to which it relates, but can be a shorter period if the plan sponsor so
decides. If the participant still does not use up the FSA funds by the
applicable date, the balance will be forfeited. Most
plans provide for a time within which participants must submit claims for the
year after the year has ended. If the plan sponsor extends the time for
utilizing the FSA funds, the sponsor should also consider adopting a similar
extension of the time for submission of claims. |
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