The PBGC is a governmental entity within the Department of Labor that guarantees the payment of certain benefits in the event a defined benefit plan terminates without sufficient assets to pay promised benefits. A PBGC covered plan is required to pay an annual premium but must meet certain distress requirements in order to receive benefits form the PBGC. Plans that are exempt from PBGC coverage and premium payments include 1) those that cover only substantial owners (more than 10% ownership) and their spouses, or 2) those sponsored by professional service employers with fewer than 25 active participants. Visit www.pbgc.gov for more information. Note that, in addition to other requirements, your Summary Plan Description must include special language if your plan is covered by the PBGC.
Refers to the business, partnership or proprietorship sponsoring the plan.
Refers to the 12 month period on which your plan is administered. This is usually the same as the fiscal year of your business.
Certain transactions are prohibited under the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA). Prohibited transactions are reported in the Form 5500 filing and trigger taxes and other penalties.
The IRC and ERISA contain outright prohibitions against direct or indirect economic transactions involving plan assets and parties related to the plan (referred to as disqualified persons or parties in interest) unless the transaction is covered by an exemption.
Prohibited transactions include, but are not limited to, the direct or indirect sale, exchange, or lease of property; extension of credit; provision of goods or services; transfer or use of plan assets and certain investments in employer securities or employer real estate in excess of the legal limits. In addition, plan fiduciaries are prohibited from receiving a kickback from any person in connection with a transaction involving plan assets.
The definitions for both party in interest and disqualified person are complex and include plan fiduciaries, service providers, sponsoring employers, as well as individuals who are related to the foregoing by family or business ties.
Please contact your tax or legal advisor if you have questions whether a particular transaction is prohibited and reportable on Form 5500 and 5330.
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