Compliance November 2, 2016

Fiduciaries Failed to Follow Plan Document for ESOP Termination

A federal court has ordered the fiduciaries to restore losses to plan participants.
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The U.S. Department of Labor (DOL) has secured a judgment against San Francisco-based California Pacific Bank and four individual fiduciaries, requiring them to pay $866,840 in retirement benefits, plus interest, to employees who participated in the company’s stock ownership benefits plan.

After a trial, the U.S. District Court for the Northern District of California found the defendants acted “in blatant disregard of the express terms of the plan document and of their fiduciary duties” under the Employee Retirement Income Security Act (ERISA), according to a DOL news release. The court ordered Richard Chi, the bank’s chairman, president and CEO and his fellow trustees Akila Chen, Kent Chen and William Mo to pay the employees cash, plus interest, into their retirement accounts.

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The court also found that the defendants diverted $81,407 of an account receivable that belonged to the plan to the bank improperly, and wrongfully transferred $69,745 from the plan’s account to the bank. The court ordered the defendants to repay these amounts too, with interest.

According to the lawsuit filed in 2013, an investigation by the DOL’s Employee Benefits Security Administration (EBSA) determined that, after California Pacific Bank terminated its employee stock ownership plan in December 2010, the plan’s fiduciaries were required by the plan document to sell the plan’s bank stock and pay the participants, in cash, into their retirement accounts. The EBSA found the fiduciaries failed to do what the plan required, and did not follow their fiduciary duties to act in the best interest of the participants. Instead of liquidating the bank stock and paying cash into the retirement accounts of the plan’s participants, they divided up the plan’s stock and put stock, rather than cash, into IRAs for plan participants. The bank is not a publicly traded company, making it difficult if not impossible for the plan participants to sell the bank shares they received.

The EBSA also determined that the participants would have received approximately $1.24 million if the plan’s 97,237 shares had been liquidated and distributed in cash at their assessed December 2009 value.
Compliance November 1, 2016

Regulators Release Informational Copies of 2016 Form 5500

The IRS says retirement plan sponsors can still skip some compliance questions on the form.
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The U.S. Department of Labor’s (DOL)’s Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2016 Form 5500 annual return/report and related instructions.

The “Changes to Note” section of the 2016 instructions highlight important modifications to the Form 5500 and Form 5500-SF and their schedules and instructions:

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IRS Compliance Questions: Although they appear on the 2016 Form 5500, Form 5500-SF, Schedules H, I, and R, the IRS has decided that filers should not enter the “Preparer’s Information” at the bottom of the first page of Form 5500 for the 2016 plan year; and should not answer the IRS questions at Lines 4o and 6a through 6d of Schedules H and I and the “Part VII – IRS Compliance Questions” of the Schedule R. Similarly, filers who are using the Form 5500-SF to satisfy their annual reporting requirement should not complete the “Preparer’s Information” at the bottom of the first page, “Part VIII-Trust Information,” and “Part IX-IRS Compliance Questions” on the Form 5500-SF. Filers should skip these questions when completing the forms.

Administrative Penalties: The instructions have been updated to reflect an increase in the maximum civil penalty amount assessable under the Employee Retirement Income Security Act section 502(c)(2) required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Department regulations published on July 1, 2016, increased the maximum penalty to $2,063 a day for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report. The increased penalty under section 502(c)(2) is applicable for civil penalties assessed after Aug. 1, 2016, whose associated violation(s) occurred after Nov. 2, 2015—the date of enactment of the  2015 Inflation Adjustment Act .

Schedules H and I: Line 5c is modified to add a new question. The existing Line 5c question asks, if a plan is a defined benefit plan, whether it is covered by the Pension Benefit Guaranty Corporation insurance program. The new question asks filers that answered “Yes,” to enter the My PAA-generated confirmation number for the PBGC premium filing for the plan year.

Schedule SB. The instructions for Cooperative and Small Employer Charity (CSEC) plans, reported in Line 27, Code 1, have been updated to reflect guidance on certain issues relating to the application of the Cooperative and Small Employer Charity Pension Flexibility Act.

The advance copies of the 2016 Form 5500 are for informational purposes only and cannot be used to file a 2016 Form 5500 annual return/report. Pension and welfare benefit plans that are required to file an annual return/report regarding their financial conditions, investments and operations each year generally satisfy that requirement by filing electronically the Form 5500 or Form 5500-SF and any required attachments under the all electronic EFAST2 system for submission, receipt, and processing of the Form 5500 and Form 5500-SF.

Information copies of the forms, schedules and instructions are available online at www.dol.gov/ebsa/5500main.html.

Filers should monitor the EFAST website for the availability of the official electronic versions for filing using EFAST-approved software or directly through the EFAST website. Assistance with the EFAST2 system is available at www.dol.gov/ebsa/form5500tips.html or by calling 1-866-463-3278.

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