Employee Plans Compliance Unit (EPCU) - Completed Projects - Project with Summary Reports - Plan Participants
Plan Participants Project Overview
The Employee Plans Compliance Unit (EPCU) Plan Participants project began in April 2011 and ended in March 2012. Compliance contact letters were sent to over 300 plan sponsors that filed Form 5500 series reports showing they made contributions to their plans during a year when there were 0 plan participants. The sponsors were asked to answer questions about their plan to determine if this was a mistake and, if so, to obtain correction.
The project goals were met, and focus points for EP were identified including recommendations to enhance compliance. The responses showed that plan sponsors in the sample correctly reported their plan contributions but made errors in reporting the number of plan participants; they showed 0 participants when there actually were plan participants.
For Forms 5500 and 5500-SF, which are filed electronically with DOL using EFAST2, mistakes mostly resulted from using vendor software that did not have an error check on the plan participants lines. For Form 5500-EZ, which are paper filed with IRS, errors mostly resulted from sponsors forgetting to fill in the participant counts.
Some of the sponsors contacted were correct in showing 0 participants at the beginning of the plan year because this was the plan’s first year. However, the sponsors incorrectly continued to show 0 participants at the end of the year, even after contributions were made.
About 88% of the sample sponsors said they had made a mistake and took administrative actions to prevent the problems from occurring in future years. Of these, 28% took a further step and corrected their errors by filing an amended Form 5500 series report. Referrals for Examination were made on small percentage of cases that appeared noncompliant.
The Project was designed to learn why sponsors filed Form 5500 series reports showing contributions being made to their plans when they had 0 participants. This information would enable EP to develop further tools, guidance and enforcement efforts. If plan sponsors are not in compliance with their annual information reporting and plan qualification requirements, then the potential exists for discrimination in favor of highly compensated employees (HCEs), prohibited transactions and abusive tax avoidance.
The Project goals were to determine:
- Why contributions are being made to plans without participants;
- Why plans without participants have assets; and
- Whether the information reported on Form 5500 is accurate.
The EPCU reviewed and analyzed the compliance check responses to determine if the employers in the sample had made mistakes in reporting either their plan contributions or the number of plan participants. The Form 5500 series, which includes Form 5500, Annual Return/Report of Employee Benefit Plan, Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan and Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, is the annual information report used by Internal Revenue Service (IRS), Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) to monitor compliance by pension plans.