AICPA NATIONAL CONFERENCE ON EMPLOYEE BENEFIT PLANS. Complex Trust Arrangements. Marcus Aron Peggy Bradley Michele Weldon

Transcription

1 AICPA NATIONAL CONFERENCE ON EMPLOYEE BENEFIT PLANS Session 37 Complex Trust Arrangements Marcus Aron Peggy Bradley Michele Weldon Comments and opinions expressed by the speaker do not necessarily reflect the positions, opinions or beliefs of the AICPA and should not be construed or interpreted as such. Speakers retain the copyright for all of the following materials. Any replication without written consent is unlawful.

2 Session 37 Complex Trust Arrangements Michele Weldon, PwC Peggy Bradley, Northern Trust Co. Marcus Aron, U.S. DOL May 2009 Background The basic reason for the identity and reporting of the DFE is to permit the Department of Labor to receive information regarding the identity of the underlying investments of the DFE and the activity of those investments during the plan year. 37-1

3 Why Does it Matter?? When the Annual Return/Report does not correctly identify and report the presence of a DFE, or the Form 5500 for the DFE is not accurately prepared, the Form 5500 for the plan is flawed and subject to rejection. Types of DFEs Master Trust Investment Account (MTIA) Common/Collective Trust (CCT) Investment Entity ( IE) Pooled Separate Account (PSA) Group Insurance Arrangement (GIA) 37-2

4 The Master Trust Investment Account ( MTIA ) An MTIA is a trust investment account designed to hold, invest and distribute the plan assets of more than one plan sponsored and maintained by an employer or a related group of employers. Recognizing Master Trusts: The enabling document for a MTIA is usually in the form of a trust agreement. Not always reported as a MTIA in the trustee/custodial statements. What happens if only one plan remains in a MTIA? 37-3

5 Common/Collective Trust A Common/Collective Trust is an investment vehicle, in the form of a trust, sponsored and maintained by a bank or trust company. It is subject to state or federal banking law. It permits collective investment, on an undivided, unitized basis, of plan assets of employee benefit plans sponsored by unrelated employers. Recognizing Common/Collective Trusts: The enabling document for a CCT is usually in the form of a trust agreement. Therefore, if the bank or trust company provides a copy of a trust agreement, executed by the bank or trust company as trustee, that is designed to hold units of investment in plan assets, its probably a CCT. 37-4

6 Recognizing Common/Collective Trusts: Identification of fund by reference to the sponsoring bank or trust company Statement of Investment Objectives vs. Prospectus Common Trust Fund," or Collective Investment Fund Collective investment in portfolios of guaranteed investment contracts ("GICs") The Investment Entity ( IE ) An investment vehicle designed to invest plan assets of employee benefit plans of more than one unrelated employer. It usually achieves tax-exempt status by qualification as a Group Trust, in accordance with Revenue Ruling This investment vehicle gets its name from the DOL Regulations that identify it and provide direction with respect to its reporting and disclosure:

7 Recognizing the Investment Entity: Catch-All for fund entities that want to be DFEs and don t qualify as a MTIA, CCT, PSA, etc. Read fund documents/trust agreements. Often operates in the form of a limited partnership or hedge fund. The Pooled Separate Account ( PSA ) A Pooled Separate Account is an investment vehicle in the form of a special account, that is separate from the general assets of an insurance company. A pooled separate account permits commingled investment of plan assets of employee benefit plans sponsored by unrelated employers. 37-6

8 Recognizing Pooled Separate Accounts: PSAs often invest in specially designed shares of mutual funds provided by outside registered investment companies Unit value is usually calculated differently than the Wall Street Journal quoted share value for the mutual fund, as the PSA proprietarily calculates unit value internally Schedule A Form 5500 Recognizing Pooled Separate Accounts: Presence of a Group Annuity Contract or other Insurance Agreement Schedules and Riders within the Contract that identify and describe the PSAs designated for investment A PSA may be structured to hold either a family of multiple investment funds or a specific fund for investment direction 37-7

9 Separate Separate Insurance Company Accounts: Not considered pooled separate accounts DFE filing is not applicable for a separate separate account DOL would expect to see Schedule H and Schedule of Assets listing out underlying assets Group Insurance Arrangement Provides benefits to the employees of two or more unaffiliated employers, but not in connection with a multiemployer plan as defined in section 3(37) of ERISA or a collectively bargained multiple employer plan. A vehicle that fully insures one or more welfare plans of each participating employer through insurance contracts purchased solely by the employers or partly by the employers and partly by their participating employees, with all benefit payments made by an insurance company. 37-8

10 Recognizing the Group Insurance Arrangement: An insurance product permitting participation by more than one unrelated employer sponsoring welfare benefits Premiums usually paid through a trust fund Reporting of DFEs General Rule Number 1: A Form 5500 must be prepared for an MTIA. Unlike the other types of DFEs, an MTIA is usually not in the form of a financial services industry product. 37-9

11 Reporting of DFEs General Rule Number 1: MTIA Form 5500 requires schedules to be attached (no audit requirement) per Form 5500 instructions. Schedule C reports only specific MTIA expenses. Reporting of DFEs (cont.) General Rule Number 2: A Form 5500 is not required, but may be filed for a CCT, PSA, IE or GIA. With a IE, the submission of a Form 5500 on its behalf will also provide relief regarding the examination and report of the independent qualified public accountant

12 Reporting of DFEs (cont.) General Rule Number 2: Form 5500 must include audited F/S and other schedules (e.g. Schedule C, Schedule of Assets, etc.) CCT and PSA allow for limited Form 5500 reporting (no F/S, no C ) Reporting of DFEs (cont.) General Rule Number 3: For funds not qualifying as a MTIA, CCT or PSA (e.g. limited partnerships, hedge funds) if the amount of investment by ERISA investors exceeds 25%, the assets of the whole fund are deemed plan assets. A plan must look through the investments for Form 5500 purposes unless a direct filing is performed

13 Reporting of DFEs (cont.) General Rule Number 3: Exceptions to look through rule: Funds operating as Venture Capital Operation Companies or Real Estate Operating Companies Reporting of DFEs (cont.) General Rule Number 4: Any Form 5500 filed for a DFE is an integral part of the Annual Report of each participating plan and the Plan Administrator may be subject to penalties for failing to file a complete Annual Report unless both the DFE Form 5500 and the plan's Form 5500 are properly filed

14 Reporting of DFEs (cont.) General Rule Number 5: DFEs that hold other DFEs as investment vehicles must report those DFEs as such in their Annual Report, and the underlying DFE must also submit an Annual Report (Form 5500) to report its identity and underlying investments. Reporting of DFEs (cont.) Reporting at the DFE Level: Only one Form 5500 is filed for each DFE The Form 5500 must identify all plans participating in the DFE The Form 5500 must report information for the DFE (not participating plan) year, not to exceed 12 months in length, that ends with or within the participating plan's year All required schedules and attachments must be included with the Form

15 Reporting of DFEs (cont). The Form 5500 for the MTIA, CCT, and PSA must comply with the instructions for a Large Pension Plan, unless otherwise specified. The specific schedules and codes can be found in the Instructions for the Form 5500 Generally, Schedule D will be used to report DFE investment within the filing DFE, Reporting of DFEs (cont.) Reporting at the Plan Level: The Form 5500 (Annual Return/Report) for the participating plan will include a Schedule D that reports all DFEs investing in plan assets The Schedule H: The Form 5500 for the participating plan will report the plan assets, and gain and loss activity, as DFEs within Schedule H 37-14

16 Reporting of DFEs (cont.) Schedule C will be used to report service provider information Schedule H will be used to report the type and activity of the underlying investment portfolio of the DFE Special Instructions for completion of the Form 5500 for a GIA Reporting of DFEs (cont.) Reporting Multiple DFEs: The Form 5500 for the reporting DFE that holds an underlying DFE will include not only a Schedule D that identifies the DFE itself, but also the presence of the underlying DFE (who will be required to submit its own DFE) 37-15

17 Reporting of DFEs (cont.) The Form 5500 for the reporting DFE will report, at Schedule H, the presence of the underlying DFE. Presumably, the Schedule H of the Form 5500 for the underlying DFE will provide information for the underlying assets of that DFE. Popular Multiple DFE Designs: Master Trust Investment Accounts holding interests in Collective Trust Funds Master Trust Investment Accounts holding interests in IEs IEs holding units of Collective Trust Funds IEs holding Group Annuity Contracts that invest in PSAs 37-16

18 What about MEWAs? A MEWA is an welfare benefit plan or other arrangement that is established or maintained to provide welfare benefits to the employees of two or more employers. MEWA Basics MEWAs may or not be ERISA-covered plans States are free to regulate MEWAs whether they are ERISA plans or not Those who operate MEWAs may have ERISA fiduciary responsibilities whether or not the MEWA is covered by ERISA MEWAs must file a Form M-1 annually with the DOL 37-17

19 Where Can I Go for MEWA Assistance? Check out the EBSA Web site: DOL Publication: MEWAs Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (ERISA): A Guide to Federal and State Regulation State insurance commissioners Things to Do to Insure Correct Identity & Reporting: Procure all enabling documentation including application forms, contracts, trust agreements, prospecti, investment policies for the permanent file Procure a list of the service providers - often that will lead you to the investment product Make sure that the permanent file includes the enabling plan documentation authorizing investment in these products 37-18

20 And Now for Your Questions The End