2009 filings, Roth conversions, and IRS survey

1)    2009 plan year tax return filings – update

You may recall that plan tax return filings (Form 5500 series) must be filed electronically, starting with the 2009 plan year – for calendar year plans, those are the returns that are due this July 31.  As noted before, this will involve you, the plan sponsor, doing some on-line registration that will be, at best, a nuisance.  Under current rules, you must do a lot of the work yourself; the Department of Labor shares the job of collecting plan information with the IRS and is obsessed with making sure that plan sponsors really and truly understand their filing responsibilities and so far, are unwilling to change their rules.  We’re holding off on asking you to do anything yet because my pension group, the American Society of Pension Professionals and Actuaries (ASPPA), has made a last-ditch appeal to allow third parties such as ourselves to file for you, if you just sign a form (as is commonly done with personal tax returns).  We can’t wait too much longer but are certainly hoping the DOL sees the light.

By the way, “one-man” plans (these generally cover only one person but the term extends to plans also covering spouses, or plans only covering partners in a partnership) are not under the DOL’s jurisdiction because they don’t cover common-law employees, and are not required to file electronically.  The IRS just released the 2009 form so we can start preparing those filings soon.

2)    Roth conversions

Starting in 2010, individuals can convert a traditional IRA to a Roth IRA, regardless of income.  (Prior to 2010, conversions were allowed, but only for those below certain income thresholds.)  Under current law, qualified retirement plan participants may not similarly convert their pre-tax 401(k) accounts to Roth 401(k) accounts.  If you’re interested in this (and you might be, if you think tax rates are only going to go up), ASPPA is lobbying to include a Roth 401(k) conversion provision in one of the many bills working its way through Congress.

3)    IRS checklist and survey

Not long ago, the IRS posted a 401(k) plan checklist and fix-it guide (http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf#page=2) on its website.  The whole thing, with corrective actions, runs to 58 pages…we’ve included the checklist on the back, which actually only begins to cover some of the “compliance” work we do for your plan(s).  We firmly believe it’s best to avoid operational and document compliance errors and avoid the hassle and expense of correction; that’s why we ask for a lot of information and why it’s important that the information be accurate and timely.

On a related note, we’ve heard that the IRS will be conducting a “survey” with similar, or maybe the same questions, in order to evaluate plan compliance.  A response is required, and the IRS has made conflicting statements about whether the information will or will not be used for enforcement.  As always, it’s best to contact us if you receive any such communication!