403(b) Outlook: Form 5500 Schedule C
September 10, 2008
What is the rule? According to final regulations published by the Internal Revenue Service (IRS), Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC), effective for 2009 plan years all 403(b) plans subject to ERISA must answer the same Form 5500 questions and file the same financial schedules as qualified 401(a) and 401(k) plans subject to ERISA. This includes Schedule C, which large plans (generally plans with 100 or more participants as of the beginning of the plan year) must file to disclose fees paid to service providers who received payments of $5000 or more.
Generally, a large plan must report the following on Schedule C:
- All service providers who received compensation of $5,000 or more
- The relationship of that service provider to the plan sponsor
- The total amount of direct compensation paid
- Whether the service provider received any indirect compensation
This is a major new reporting requirement for 403(b) plan administrators. The DOL is asking plan sponsors subject to ERISA to pay closer attention to fee transparency and ensure that they obtain the information they need to assess the compensation rendered for the services provided.
We will continue to provide updates about Schedule C and other changes made by the regulations to Form 5500 requirements throughout 2008. TIAA-CREF is also preparing new materials and developing technologies that will help enable plan administrators of 403(b) plans to comply with the new 5500 reporting requirements.
Direct compensation is compensation received directly from the plan. For example, payments by the plan to a third-party vendor for recordkeeping services are considered direct compensation. Payments made by the plan sponsor for services which are not reimbursed by the plan are not subject to Schedule C reporting even if the sponsor paid for services rendered to the plan.
Indirect compensation is compensation received from sources other than the plan or plan sponsor if the compensation was received in connection with services rendered to the plan. It includes fees or expense reimbursement payments charged to investment funds and reflected in the value of the investment or return on investment of the participating plan or its participants, finders’ fees, “soft dollar” revenue, float revenue, and/or brokerage commissions or other transaction-based fees for transactions or services involving the plan that were not paid directly by the plan sponsor.
What has changed? Administrators of 403(b) plans are not currently required to complete all of the questions on Form 5500 or to include any of the schedules with the annual filings.
Effective date: Plans need to file Form 5500 (for large plans, this will include Schedule C) by the last day of the seventh month (unless an extension applies) following the end of the 2009 plan year. For calendar-year plans, the due date without extensions is on or before July 31, 2010. Plan sponsors will be required to file Form 5500 and its applicable schedules electronically.
What happens if you fail to comply? Your institution could be subject to substantial penalties and fines if you fail to file Form 5500 and all appropriate schedules.
Read more about Form 5500 filing and reporting.
Next week’s issue: 415 aggregation limit