Understanding the New Schedule C

The new Schedule C will help you take a good, hard look at plan fees. The plan sponsor is obligated to ensure plan fees are reasonable. The Department of Labor (DOL) takes this obligation seriously and brought action against NFL player Michael Vick this year for allegedly violating his fiduciary duties as a plan trustee. The DOL alleges that Vick made prohibited transfers (approximately $1.35 million) from a retirement plan to pay for criminal restitution related to his dog fighting conviction.

The Schedule C has three basic parts as follows: (1) identify parties that receive $5,000 or more in compensation who perform a service for the plan; (2) hold accountable service providers that did not provide the necessary information to appropriately complete Part I of Schedule C; and (3) explain why a relationship with an accountant or actuary has ceased.

Do I really need to?

Granted, not everyone is required to file the Schedule C. You are required to do so if you have a large plan (a plan that is audited), a MTIA, GIA, or 103-12 IE and a service provider received $5,000 or more in compensation. You need not concern yourself with the Schedule C for a CCT, PSA, or a Large Welfare Plan that meets the requirements of TR 92-01 and 29 CFR 2520.104-44.

Disclose your fees to me

As a courtesy, request from service providers in a timely fashion to provide the requisite information. If the service provider delays, then warn that such will be reported on Part II of Schedule C. Please consider whether the service provider made a reasonable effort to comply or merely dismissed the request.

We are paying you WHAT!?!

The DOL wants you to report monies paid directly by the plan (or the plan sponsor if the plan reimburses) for services to the plan or due to a position held in connection with the plan. Furthermore, the DOL wants you to report indirect compensation paid for such services and positions. Indirect compensation includes finder fees, commissions, float revenue, distribution fees, etc. Common recipients of these monies include custodians, record keepers, brokers, and investment managers. Indirect compensation does not include monies that would have been received had no service or transaction occurred and that cannot be reasonably allocated to the plan. The threshold for reporting is $5,000; however, the disclosure of a formula rather than a dollar amount will not be rejected by the DOL. There are exceptions to this requirement such as follows: (1) plan employee compensation under $25,000, (2) a sponsor that was not reimbursed by the plan, (3) employees of the service provider or sponsor if the provider was reported on Schedule C and no other compensation from the plan was paid to the employee.

Noteworthy Changes

Compensation includes commissions and brokerage fees regardless of whether the broker has discretion. The reporting of the top 40 providers is eliminated, which means that all providers which meet the requirements for reporting are listed.

Terminating the Professional

The reporting requirement for the termination of a relationship with an accountant or actuary is nothing new. Please remember to report the accounting firm as being terminated, not the individual C.P.A. However, with respect to an actuary, please report the individual.

Although appearing more stringent, the new Schedule C requirements can have a benefit to your record keeping and maintaining your company’s clean reputation.