This post applies to defined benefit plans covered by the Pension Benefit Guaranty Corporation (PBGC).
What is PBGC Form 501?
The PBGC recently updated the instructions to PBGC Form 501, Post Distribution Certification for Standard Termination. As the name implies, PBGC Form 501 is filed after all benefits have been paid from a terminated defined benefit plan.
PBGC Form 501 is generally due within 30 days after distributions have been completed. The recent update to the instructions added a major paperwork requirement when filing PBGC Form 501.
Updates to PBGC Form 501
Beginning March 1, 2015, the PBGC has added a requirement that proof of payment for participants receiving a lump sum be sent with PBGC Form 501. The proof must include the employees’ names. Specifically, the instructions state:
For individuals who received a lump sum distribution, a copy of the cancelled check or bank statement with the individual’s name and distribution amount. (emphasis added)
In the past we have found getting cancelled checks from a brokerage house can be a chore.
One option is for the client to open a checking account in the plan’s name to make the distributions. This way getting the cancelled checks may be less of a challenge.
In addition to proof of payment, a full copy of the latest complete plan document, plus amendments must be sent with the filing.
In the past the Employer was required to maintain records and, upon audit, be able to prove payment had been made. Apparently the PBGC has decided this wasn’t enough.
This will not be the last change to pension rules or regulations. Reporting requirements change from time-to-time, so maintaining complete records and hiring competent advisors can help you navigate the Governmental maze.
Kevin J. Donovan, CPA, EA, FSPA is the managing member and lead actuary at Pinnacle Plan Design.