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The purpose of these FAQs is to provide guidance
to plan administrators and accountants on complying with the requirements
of
the 2003 Form 5500 Annual Return/Report of Employee Benefit Plan for reporting
delinquent participant contributions on Line 4a and Line 4d of the Schedules H
and I. |
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Since 1995, the Employee Benefits Security
Administration (EBSA) has pursued an aggressive enforcement project intended to
safeguard employee contributions to 401(k) plans and health care and other
welfare plans by investigating situations in which employers delay in
forwarding participant contributions to employee benefit plans.
As part of that effort, plan administrators who
are required to file Form 5500 financial information on a Schedule H (large
plans) or Schedule I (small plans) must report on Line 4a of the schedule
whether an employer failed to transmit to the plan any participant
contributions within the time period set forth in the Department’s plan
asset regulation at 29 CFR § 2510.3-102. Under the regulation, amounts
paid by a plan participant or beneficiary or withheld by an employer from a
participant’s wages for contribution to a plan are plan assets on the
earliest date that they can reasonably be segregated from the employer's
general assets, but in no event later than (i) for pension plans, the 15th
business day of the month following the month in which the participant
contributions are withheld or received by the employer and (ii) for welfare
plans, 90 days from the date on which such amounts are withheld or received by
the employer.
Also, when an employer is delinquent in
forwarding participant contributions and holds them commingled with its general
assets, the employer will have engaged in a nonexempt prohibited transaction
under ERISA section 406. Line 4d on the Schedule H and Schedule I required plan
administrators to report delinquent participant contributions as nonexempt
prohibited transactions unless the requirements for the DOL Voluntary Fiduciary
Correction Program (VFCP) were met, and the conditions of PTE 2002-51 were
satisfied. Plans filing Schedule H that report nonexempt prohibited
transactions on Line 4d also are required to file a Schedule G to report
detailed information regarding the nonexempt prohibited transactions. |
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The Department received comments that these
reporting rules required many plans to include essentially the same information
regarding delinquent participant contributions on Line 4a, Line 4d and Schedule
G. Accordingly, in order to avoid unnecessary, duplicative reporting, the
Department improved the requirements beginning with the 2003 Form 5500.
Beginning with the 2003 Form 5500, information on
delinquent participant contributions reported on Line 4a is no longer also
reported on Line 4d or Schedule G. This will simplify reporting of information
on delinquent participant contributions. It does not, however, change the fact
that all delinquent participant contributions required to be reported on Line
4a, except those for which the DOL VFCP requirements have been met and the conditions of
PTE 2002-51 have been satisfied, are nonexempt prohibited
transactions. |
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No. In the case of employee benefit plans subject
to an annual audit requirement under ERISA, an independent qualified public
accountant (IQPA) conducts an audit of the plan in accordance with generally
accepted auditing standards (GAAS) for purposes of rendering an opinion on
whether the plan’s financial statements are presented fairly in
conformity with generally accepted accounting principles (GAAP). The
supplemental schedules referenced in ERISA section 103(a)(3)(A) and 29 CFR
§§ 2520.103-1(b) and 2520.103-2(b), including information regarding
nonexempt prohibited transactions, are also subject to the IQPA’s auditing
procedures applied in the audit of the plan’s basic financial statements,
and the IQPA expresses an opinion on whether the scheduled information is
presented fairly in all material respects in relation to the basic financial
statements taken as a whole. The IQPA’s audit report and opinion is made
part of the plan's annual report as required by section 103(a)(1)(A) of
ERISA.
The 2003 Form 5500 instructions state that
delinquent participant contributions reported on Line 4a should be treated as
part of the supplemental schedules for purposes of reporting on the plan’s
financial statements by the IQPA. The instructions also advise that if the
information contained on Line 4a is not presented in accordance with the
Department’s regulatory requirements, the IQPA report must make the
appropriate disclosures in accordance with GAAS.
These instructions were not intended to change or
reduce the IQPA audit and reporting responsibilities. Rather, the cautions were
provided to make certain that the plan continues to include delinquent
participant contributions in its financial statements and supplemental
schedules and that the IQPA’s report covers the delinquent contributions
even though they are no longer required to be included on Line 4d or on the
Schedule G. |
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The requirement may be satisfied by including an
attachment in the Form 5500 report labeled "Line 4a -- Schedule of Delinquent
Participant Contributions" that sets forth the information on Line 4a regarding
total aggregate delinquency for the plan year and the subtotal that constitutes
nonexempt prohibited transactions. As noted above, in calculating this
subtotal, plan administrators and IQPAs should understand that all delinquent
participant contributions required to be reported on Line 4a are nonexempt
prohibited transactions unless the delinquency has been corrected under the
VFCP and the conditions of PTE 2002-51 have been satisfied. Further, the
IQPA’s report must include a statement on whether Line 4a and the
scheduled information are presented fairly in all material respects in relation
to the basic financial statements taken as a whole. |
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Yes. The schedule could use the format set forth
below or a similar format on the same size paper as the Form 5500.
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2003 Form 5500 Line 4a -
Schedule of Delinquent Participant Contributions |
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Participant Contributions Transferred Late to
Plan |
Total that Constitute Nonexempt Prohibited
Transactions |
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Although not required, plan administrators may
want to include information regarding the extent to which the delinquencies
have been corrected under the VFCP for which the conditions of PTE 2002-51 have
been satisfied, delinquencies otherwise corrected, and uncorrected
delinquencies. In those cases, the schedule could use the format set forth
below:
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2003 Form 5500 Line 4a -
Schedule of Delinquent Participant Contributions |
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Participant Contributions Transferred Late to
Plan |
Total that Constitute Nonexempt Prohibited
Transactions |
Total Fully Corrected Under VFCP and PTE
2002-51 |
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Contributions Not Corrected |
Contributions Corrected Outside VFCP |
Contributions Pending Correction in
VFCP |
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As with any other information required to be
presented on supplemental schedules, when the auditor concludes that the
scheduled information required by Line 4a does not contain all the required
information or contains information that is inaccurate or is inconsistent with
the plan’s financial statements, the auditor must consider, depending on
the nature of the problem and the type of information, either modifying his or
her report by adding a paragraph to disclose the omission of the information,
or expressing a qualified or an adverse opinion on the supplemental schedules,
as appropriate. See AICPA Audit and Accounting Guide for Audits of Employee
Benefit Plans at paragraphs 13.09 through 13.19. |
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Schedule H and Schedule I filers must report all
delinquent participant contributions for the plan year on Line
4a regardless of whether they have been corrected under the VFCP and the
conditions of PTE 2002-51 have been satisfied. |
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If participant contributions were transmitted to
the plan late during Year 1, and the violation was not corrected until sometime
during Year 2, the total amount of the delinquent contributions should be
included on Line 4a of the Schedule H or I for Year 1 and should be carried
over and reported again on Line 4a of the Schedule H or I for each subsequent
year until the year after the violation is corrected. |
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Delinquent participant contributions must be
reported on Line 4a and should not be reported on Line 4d or Schedule G.
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With respect to the prohibited transaction
provisions of ERISA section 406, the employer of employees covered by the plan
is a party in interest with respect to the plan under ERISA section 3(14)(C).
The failure to segregate and forward participant contributions to a plan from
the general assets of the employer in the time frames prescribed by 29 CFR
§ 2510.3-102 would result in a prohibited use of plan assets in violation
of section 406(a)(1)(D) of ERISA. Similarly, because an employer who retains
plan assets commingled with it general assets would be a fiduciary with respect
to those assets pursuant to ERISA section 3(21)(A)(i), any actions taken by the
employer with respect to the participant contributions that become plan assets,
other than the actual contribution of such assets to the employee benefit
plan’s trust or the actual payment of welfare benefits for employees,
would be a violation of ERISA section 406(b)(1) and (2).
Although the failure to forward participant
contributions in a timely fashion would not, in itself, constitute an extension
of credit between the plan and the employer in violation of section
406(a)(1)(B), depending on the particular facts and circumstances, a separate
arrangement, agreement or understanding to extend credit to pay the delinquent
amounts to the plan could occur that would give rise to a violation of section
406(a)(1)(B). Such arrangement, agreement or understanding could be express or
implied. For example, a fiduciary’s consistent failure to exercise
diligence in its collection efforts regarding participant contributions may
serve as the basis to assert that an implied understanding existed to extend
credit between the fiduciary and the employer. |
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In Advisory Opinion 2002-02A, the Department
stated that participant loan repayments paid to or withheld by an employer for
purposes of transmittal to an employee benefit plan are sufficiently similar to
participant contributions to justify, in the absence of regulations providing
otherwise, the application of principles similar to those underlying the
participant contribution regulation for purposes of determining when such
repayments become assets of the plan. Delinquent forwarding of participant loan
repayments is eligible for correction under the VFCP and PTE 2002-51 on terms
similar to those that apply to delinquent participant contributions.
Accordingly, the Department will not reject a 2003 Form 5500 report based
solely on the fact that delinquent forwarding of participant loan repayments is
included on Line 4a of the Schedule H or Schedule I. Filers that choose to
include such participant loan repayments on Line 4a must apply the same
supplemental schedule and IQPA disclosure requirements to the loan repayments
as apply to delinquent transmittals of participant contributions. |
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Questions concerning this guidance may be directed
to the EFAST Help Line at 1.866.463.3278, Monday through Friday from 8:00 am to
8:00 pm, Eastern Time. |
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