Discussion:Plan Sponsor vs Plan Administrator

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Discussion Forum Index --> Basic Tax Questions --> Plan Sponsor vs Plan Administrator

Discussion Forum Index --> Tax Questions --> Plan Sponsor vs Plan Administrator

Actionbsns (talk|edits) said:

11 November 2010
I have a client who has rolled their Sep/IRA into a 401-K with a life insurance company. They are asking how ERISA affects them, which I'm about ready to discuss with them, but I need clafification on the difference between the sponsor and the administrator. I think that the employer is the sponsor and the insurance company, in this case, is the administrator. Further, I think the insurance company will complete and file Form 5500. I've never been called on to complete the 5500, and what I'm reading says the administrator is ultimately responsible for its filing. Do I have that right?

Captcook (talk|edits) said:

12 November 2010
In my experience, the sponsoring company is also the administrator, if the plan is a one company plan (as this appears to be). They may contract the actual administration out to a third party, but the company is still on the hook to make sure everything is reported and handled properly. See page 16 of the 5500 instructions.

Actionbsns (talk|edits) said:

12 November 2010
So are you saying that you are the one preparing the form 5500 for your client? Because, I've never done one. This is a one person 401-K, placed into an annuity with an insurance company. Sounds like they've just made something very simple into something very complicated.

Smokeytax (talk|edits) said:

12 November 2010
Actionbsns -

This is one of my pet peeves!

You're right, the employer is the plan sponsor. The administrator is responsible for filing the form 5500. It's possible that the insurance company is serving as administrator, but unlikely in my experience. They may be only a "service provider".

In my experience with Fidelity and Paychex, the service provider is often not taking on the responsibility of being the plan administrator. Rather they are leaving the job to the employer.

Typically they will advise the employer/administrator that form 5500 is needed and even walk them through filling it out, but are not taking responsibility for it.

So, I think you'll need to determine who will be the administrator by asking the insurance company or looking at the paperwork your client is signing.

Actionbsns (talk|edits) said:

12 November 2010
Smokey, thanks, that's a better answer. I still need to get a copy of the plan document from the client, I'm not sure they have one yet. They immediately took a loan and I've seen the loan document which is where this issue of ERISA started. I had a friend years ago who worked at Merrill, Lynch and she called me about a form 5500, but it seems ML had someone on board to prepare the form so I've never done on, and never been asked to do one. What a pain!!!

Smokeytax (talk|edits) said:

12 November 2010
That's why it's one of my pet peeve's. The brokers & insurance companies happily set up the plans, making big commissions, but never really explain to their customers that there's administration work to be done that can be complicated and costly and that the customer is expected to do, or hire a specialist to do.

Laticiaw (talk|edits) said:

12 November 2010
Action, just got through with the pension plan through insurance contracts We finally convinced the client to get rid of them because the insurance company stated that they were not responsible for the 5500. The client is. So we filled out the 5500 and it is a pain, to say the least. But you do need to talke to the insurance company, look at the plan, and make sure that the insurance company and the plan are on the same page...it could cause major pains later on.

Marty1970 (talk|edits) said:

14 November 2010
Actionbsns, in all likelihood your client is the plan administrator and is responsible for the Form 5500 series filing. The plan document often will designate who the administrator is. It could be a named person or it could refer to a party named somewhere else, e.g. a person 'chosen by the board of directors.' If no one is named anywhere as administrator, the task defaults to the plan sponsor. The plan document is undoubtedly a boilerplate. It probably has an adoption agreement with 1-25 pages or so, and then the rest of the plan could be another 50-80 pages, including a definitions section with possible 'plan administrator' info.

Retirement plan vocabulary is full of terms that have multiple definitions and exceptions to the definitions. There are several parties involved with section 401 qualified plans, and often a specialist's knowledge of retirement subspecialties other than his own is dangerously defective. The 2 most common errors made with qualified plans are the failure to timely file the 5500 and the failure to timely amend the plan document. The plan document providers are doing well if they can imprint these responsibilities into the sponsor's awareness, which frequently doesn't happen.

ERISA is the Employee Retirement Income Security Act of 1974 that revamped the rules regarding employee benefits. Of the four titles within ERISA, it's usually Title I you're dealing with when you're speaking of an "Erisa Plan.” Title I is enforced by the EBSA branch of the Department of Labor and has to do with plan eligibility, vesting, funding, reporting, disclosure, and fiduciary standards. Plans sponsored by a church or government or plans with no rank and file employees will typically be exempt from Title I (exempt from both responsibilities and protections) and are the 'non-Erisa' plans.

Title II contains many of the tax related Erisa rules. There are parallels to the Title I eligibility, vesting, and funding, with the ERISA legislation creating or amending Internal Revenue Code sections. As a former IRS plan specialist, I would refer to the IRC instead of Erisa in most cases. There are additional Title II topics like IRC section 410 coverage, 415 contribution/benefit limitations, 416 topheavy rules, and 401(a)(31) rollover option rules.

Actionbsns, when it comes to a plan loan we have to meet the exception to the usual rule against self dealing. So the IRS will look to see the IRC section 4975 prohibited transaction rules and the 72(p) and 1.72(p) regulations have been complied with. If you're seeing ERISA mentioned, I think it's because the Department of Labor ultimately has the final say on whether or not a prohibited transaction has occurred. I can't personally recall a case where DOL got involved where it's a 1 person plan. In most if not all situations involving a 1 person plan, you just try to meet the IRS rules.

With the required electronic filing of the 5500 using the Efast system, the processing is done by the DOL. This is true even if the filing is a 5500-EZ, which is a filing for a plan that's not under DOL's Title I jurisdiction. So DOL might tell you the filing is late or defective, but it's the IRS that will take it from there. Conversely, when paper returns were filed with IRS service centers, most recently Ogden, some returns were mainly under DOL jurisdiction, such as non retirement benefit plans. If a filing was missing a required CPA audit, the IRS might inform you of this but the DOL would be the one to follow through, since the audit is a Title I requirement.

Back on the administrator topic, one person plans are often self administered. Plans with just a few employees are often self administered too, but this has gotten more complicated in recent years with the increasing fiduciary responsibilities.

Actionbsns (talk|edits) said:

14 November 2010
Thanks Marty for taking the time to provide such a clear response. I've been doing some research on this and I think the loan they took falls under the allowed transactions, but I still haven't seen the plan document, nor has the client. I need to find out the value in the plan, since if it's less than $250,000 they won't be required to file even the Form 5500EZ. I'm really convinced now that they have taken something very simple and easy and turned it into something way more complicated. I'm not sure why they made this move.

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