IRS has released the 2010 version of Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan, which some plans must soon file. The new form reflects a new type of pension plan that first became available in 2010. It also reflects some changed administrative practices. While they generally were first implemented last year, they are worth noting for plans first having to file Form 5500-EZ for 2010.
Purpose of form. Form 5500-EZ is used by one-participant plans that are not subject to the requirements of section 104(a) of the Employee Retirement Income Security Act of 1974 (ERISA) and that are not eligible or choose not to file Form 5500-SF electronically to satisfy certain annual reporting and filing obligations imposed by the Code. For 2010 filings, foreign pension plans that are required to file an annual return must file Form 5500-EZ.
The instructions stress that a one-participant plan (see below) cannot file an annual return on Form 5500, Annual Return/Report of Employee Benefit Plan, regardless of whether the plan was previously required to file an annual return on Form 5500. Therefore, every one-participant plan required to file an annual return must file paper Form 5500-EZ with IRS or choose, if eligible, to electronically file Form 5500-SF (Short Form Annual Return/Report of Small Employee Benefit Plan) using the EFAST2 Filing System (an all-electronic system designed by the Department of Labor, IRS, and Pension Benefit Guaranty Corporation to simplify and expedite the submission, receipt, and processing of Forms 5500 and 5500-SF).
Who must file Form 5500-EZ. Form 5500-EZ must be filed for a retirement plan if:
... it is a one-participant plan that is required to file an annual return and the taxpayer is not eligible or chooses not to file the annual return electronically on Form 5500-SF; or
... it is a foreign plan that is required to file an annual return.
A one-participant plan is a retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which:
... covers only the taxpayer (or the taxpayer and his spouse) and the taxpayer (or the taxpayer and his spouse) owns the entire business (which may be incorporated or unincorporated); or
... covers only one or more partners (or partners and their spouses) in a business partnership; and
... does not provide benefits for anyone except the taxpayer (or the taxpayer and his spouse) or one or more partners (or partners and their spouses).
Who may not have to file Form 5500-EZ. A Form 5500-EZ does not have to be filed for the 2010 plan year for a one-participant plan if the total of the plan's assets and the assets of all other one-participant plans maintained by the employer at the end of the 2010 plan year does not exceed $250,000, unless 2010 is the final plan year of the plan. If a plan meets all the requirements for filing Form 5500-EZ and its total assets (either alone or in combination with one or more one-participant plans maintained by the employer) exceed $250,000 at the end of the 2010 plan year, Form 5500-EZ must be filed for each of the employer's one-participant plans including those with less than $250,000 in assets for the 2010 plan year.
EFAST2 Filing system. One-participant plans may satisfy their filing obligation by filing Form 5500-SF electronically under EFAST2 in place of Form 5500-EZ (on paper), provided that the plan covered fewer than 100 participants at the beginning of the plan year. One-participant plans that covered 100 or more participants at the beginning of the plan year are not eligible to file Form 5500-SF, and must file Form 5500-EZ.
Eligible combined plans. The Pension Protection Act of 2006 (P.L. 109-280) established rules for a new type of pension plan, an “eligible combined plan,” effective for plan years beginning after Dec. 31, 2009. An eligible combined plan consists of a defined benefit plan and a defined contribution plan that includes a qualified cash or deferred arrangement under Code Sec. 401(k), with the assets of the two plans held in a single trust, but clearly identified and allocated between plans. The eligible combined plan design is available only to employers that employed an average of at least 2 but not more than 500 employees on each business day during the calendar year preceding the plan year as of which the eligible combined plan is established and that employs at least 2 employees on the first day of the plan year. Because an eligible combined plan includes both a defined benefit plan and a defined contribution plan, the Form 5500-EZ filed for the plan must include all the information that would be required for either a defined benefit plan or a defined contribution plan.
Final plan year. All one-participant plans should file the Form 5500-EZ for their final plan year indicating that all assets have been distributed. The final plan year is the year in which distribution of all plan assets is completed.
Filing due date. Form 5500-EZ must be filed by the last day of the seventh month following the end of the plan year (e.g., normally July 31 for calendar year plans but Aug. 1, 2011 for 2010 calendar years plans because July 31, 2011 falls on a Sunday) unless an extension is granted. A one-time extension to file Form 5500-EZ of up to 2 1/2 months may be obtained by filing Form 5558.
One-participant plans automatically receive an extension of time to file Form 5500-EZ (without filing a Form 5558) if the following conditions are met:
... the plan year and the employer's tax year are the same;
... the employer has been granted an extension to file its federal income tax return to a date later than the normal due date for filing the Form 5500-EZ; and
... a copy of the application for extension of time to file the federal income tax return is retained with the plan's records..
This exception gives an extension to the extended due date for filing the employer's income tax return.
Caution: However, if the filing deadline for any plan is extended automatically, it cannot be extended further by filing a Form 5558 after the original due date.
References: For Form 5500-EZ annual reporting requirements for one-participant pension plans, see FTC 2d/FIN ¶S-3357; United States Tax Reporter ¶60,334; TaxDesk ¶813,010; TG ¶9101.