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IRS Updates Pension Plan Tax Form

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NU Online News Service, Sept. 29, 2004, 4:33 p.m. EDT

The Internal Revenue Service is updating the defined benefit pension plan tax form to help employers who sponsor cash-balance plans.[@@]

The move, discussed in IRS Announcement 2004-80, affects the 2003 Form 5500 Schedule B.

Sponsors of defined benefit pension plans use the form to give the IRS information about plan contributions.

Sponsors of traditional DB plans calculate contributions using a formula that assumes employees will work for the same company for many years. The formula lets employers make smaller contributions for newer employees than for employees with more years of service.

Sponsors of cash-balance DB plans calculate contributions 1 year at a time. They use a contribution formula that produces the same results for old employees and new employees.

Sponsors of large cash-balance DB plans have had to give the IRS average cash-balance account data on line 8c of the 2003 Schedule B.

Sponsors still have to supply the data, but the 2003 instructions did not explain how plan sponsors should report the required data.

“Because many plan sponsors have had difficulty reporting the data required by line 8c of the 2003 Schedule B, this announcement is intended to provide flexible options to comply with existing reporting requirements,” the IRS says in Announcement 2004-80.

Employers can put plan members in a series of “age/service bins” and report average account data for each bin, rather than for each individual participant.

Employers also can report the data by using scattergrams to show account balance and compensation information for all active plan participants.

More information about the updated form is on the Web at //