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Member Alerts

Form 5500 Electronic Filing Requirement

Beginning with the 2009 plan year, the Department of Labor will require retirement and welfare plans to file their annual reports (Form 5500) electronically. There will no longer be the option to file paper forms. All forms MUST be filed electronically, and the system designed by DOL to handle these filings is a completely new (and untested) system that is supposed to be operational as of January 1, 2010.

If you provide assistance to clients in filing their Form 5500, you must familiarize yourself with the new filing requirements. The Form 5500 series is a required filing for almost all retirement plans, but you should be aware that welfare plans (including health insurance programs) that have 100 participants or more are also generally subject to the filing requirement.

Instructions and frequently asked questions are available through Department of Labor/Employee Benefits Security Administration (DOL/EBSA) webcasts at www.dol.gov/ebsa/

Employee Owned Life Insurance (EOLI) Contracts: IRS Notice 2009-48 and 101(j)

In the ongoing developments concerning EOLI, the IRS notice above now states that a Sec 1035 exchange to a policy with a larger face value or other material change will cause the exchanged policy to be considered a new policy. It is, therefore, possible to do an effective notice and consent before the issue of a new policy. This contrasts with the previous belief that the only "out" was to terminate the existing policy and issue a new one.

The notice also clarifies that the person owning the contract must be engaged in a trade or business. A grantor trust to a trade or business will be treated as if owned by the trade or business. A pdf file of the Notice is available on the Society Web site at IRS Notice.

We want to make sure that all of our members are aware of these new developments and also provide them with an opportunity to communicate this issue to the employers and other financial practitioners, attorneys and CPAs that they are acquainted with. Below are links to resources that you may find helpful:

FSP will provide new podcasts and an audio/web conference on EOLI shortly. Keep checking www.financialpro.org.

Note: Unlike other resources that just report new developments, Keeping Current translates the theoretical into the practical and examines the bottom-line implications for you, your clients and your practice. It's perceptive commentary about critical issues that can help you capitalize on change. Get the details on how you can subscribe to Keeping Current at the low member rate.

IRS Revenue Rulings 2009-13 & 2009-14

On May 1, 2009, the IRS issued Rules 2009-13 and 2009-14. These rulings address the amount of taxable income resulting from the sale of a life insurance policy and on the payment of the death benefit. Rule 2009-13 applies to sellers and is effective August 26, 2009. Rule 2009-14 applies to buyers and appears to be retroactive to May.

Prior to the rulings, a seller's basis in life settlement transactions was held to be the aggregate premiums paid without reduction for cost of insurance (COI) charges. Ruling 2009-13 now requires a reduction in basis for COI. This addition of the COI can dramatically affect taxes to be paid by both buyer and seller and have a profound impact on the future of life settlements.

Ruling 2009-14 concerns the taxability of death benefits to the buyer of a life insurance policy.

If you are or will be involved in a life settlement or sale of a life policy to a third party, we strongly suggest you seek the advice of your company or tax counsel. For examples of how these rulings apply, visit http://www.irs.gov/irb/2009-21_IRB/ar02.html#d0e34