NU Online News Service, May 20, 2004, 6:17 p.m. EDT – A key pension group says the federal government should make all defined benefit plans, including very small 412(i) plans, file annual Form 5500-series tax forms.[@@]
Requiring 412(i) plans with less than $100,000 in assets to file annual tax forms with the Internal Revenue Service would help the IRS maintain the integrity of the 412(i) plan market, according to a group of 5 leaders of the American Society of Pension Actuaries, Arlington, Va.
“Apparently, some promoters of 412(i) plans are encouraging sponsors of owner-only plans to structure their programs so that the value of the insurance products funding the plan never reaches $100,000,” the actuaries write in a letter commenting on IRS efforts to update 412(i) plan regulations.
Some plan sponsors think that avoiding Form 5500 filings can help them “hide” from the IRS and avoid plan audits, the ASPA actuaries write.
The authors of the letter include ASPA Executive Director Brian Graff, the chair of ASPA’s administration relations committee and the 3 co-chairs of ASPA’s government affairs committee.
Section 412(i) of the Internal Revenue Code lets employers use guaranteed life insurance policies and annuity contracts to fund simple defined benefit retirement plans.
Because the sponsors must use funding vehicles that offer guaranteed benefits, the IRS exempts them from some of the recordkeeping requirements and other requirements that it imposes on bigger, more complicated defined benefit plans, including annual Form 5500 filing requirements.
In the 1990s, business owners were more interested in defined contribution plans than defined benefit plans, but 412(i) plans have been getting more attention since the stock market slumped in 2001. Some business owners like the idea of guaranteeing large, steady retirement benefit payments, and owners also have discovered that the low rates of return on guaranteed plan funding vehicles mean that they can deduct huge plan contributions from taxable income.