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Correcting Compliance
Problems in Employee Benefit Plans: Part One -
Form 5500 Delinquent Filer Relief
By:
Lisa M. deFilippis, Esq.
 Sponsors
of employee benefit plans, including both retirement
plans and welfare benefit plans (such as health, life
and disability), must comply with a myriad of laws and
regulations in order to maintain compliance with ERISA.
These include reporting obligations, plan document and
operational requirements, and fiduciary standards.
Given the breadth and complexity of the ERISA rules, it
is not uncommon for an employer-sponsor of an employee
benefit plan to inadvertently fail to comply with one or
more of ERISA’s requirements. To encourage voluntary
compliance, both the Department of Labor (DOL) and the
Internal Revenue Service (IRS) have instituted
correction programs that permit employee benefit plan
sponsors to identify and correct plan non-compliance and
avoid government enforcement action and penalty
assessments.
This article is the
first in a series of three that will discuss these
correction programs and explain how they can be used to
bring employee benefit plans into compliance with ERISA,
thereby maintaining their tax-qualified status and
avoiding large penalty assessments and excise taxes.
This article focuses on the DOL’s Form 5500 delinquent
filer program. Future articles will discuss the IRS’s
program for correction of compliance problems with a
retirement plan’s documents and operations, and the
DOL’s program permitting the voluntary correction of
breaches of fiduciary duty.
An administrator of
an employee benefit plan must file a Form 5500 every
year, reporting detailed financial, actuarial and other
information. A Form 5500 must be filed for each
retirement plan (including 401(k) plans) and for each
welfare benefit plan (including health, life insurance,
and disability plans) by the last day of the seventh
month following the end of the plan year, unless a
request for an extension is filed. The filing of Form
5500 satisfies annual reporting requirements of the DOL,
as well as the IRS and the Pension and Benefits Guaranty
Corporation (PBGC).
A plan
administrator (generally the employer sponsoring the
plan) who fails to file the Form 5500 on time may be
subject to substantial penalties: (1) $25/day – up to a
maximum of $15,000 – from the IRS; and (2) up to
$1,100/day from the DOL.
To encourage late
filers and non-filers to comply with ERISA’s annual
reporting requirements voluntarily, the DOL instituted
the Delinquent Filer Voluntary Compliance (DFVC)
Program. Plan administrators with delinquent Form 5500
filing obligations can avoid large civil penalty
assessments by satisfying the DFVC Program requirements
and voluntarily paying a reduced penalty amount.
Under the DFVC
Program, the basic penalty amount is $10 per day, up to
a maximum penalty for a single late annual report of
$750 for a small plan (under 100 participants) and
$1,500 for a large plan. The DFVC program also has a
“per plan” cap that permits plan administrators to file
annual reports for a single plan for multiple years.
The “per plan” cap limits the penalty to $1,500 for a
small plan and $4,000 for a large plan, regardless of
the number of years of late annual reports filed with
respect to one plan.
By filing a
delinquent Form 5500 with the DFVC Program, a plan
administrator can also avoid IRS and PBGC penalties.
Both the IRS and the PBGC will provide penalty relief
for delinquent Form 5500s filed with the DFVC Program if
the plan administrator has met the conditions of the
DFVC Program.
Plan administrators
are not eligible to participate in the DFVC Program and
file delinquent Form 5500’s if the plan has been
notified by the DOL in writing of a failure to file a
Form 5500. However, if a plan administrator receives a
notice of delinquent filing and penalty assessment from
the IRS, but has not received a notice from the DOL, the
plan remains eligible to participate in the DFVC
Program, and the plan administrator may file the
delinquent Form 5500. The IRS will still waive the IRS
penalties.
The DFVC Program is
not available for plans – such as single-participant
plans – that are not subject to Title I of ERISA.
However, a plan sponsored by a tax-exempt organization
(a “501(c)(3) organization”) is eligible for the DFVC
Program, and a special “per plan” cap of $750 applies to
small plans of tax-exempt organizations. “Top Hat”
plans (non-qualified deferred compensation plans for
executives), which are subject to a simplified
report-filing requirement that is often overlooked by
plan administrators, are also eligible to participate,
and a $750 “per plan” penalty applies.
To participate in
the DFVC Program, Form 5500s must be filed with the DOL
for each year for which relief is sought. The Form
5500s must also be submitted to the DFVC Program with
the appropriate penalty amount.
The DFVC Program
offers an opportunity for plan administrators with
delinquent annual report filing obligations to avoid
civil penalties that can be enormously high. Therefore,
plan administrators should review their employee benefit
plans to determine if all required filings have been
made, and have been made on a timely basis. If
delinquencies are discovered, participation in the DFVC
Program can shield a plan administrator from the risk of
significant future penalties.
Lisa deFilippis
is a
Partner in the Taxation & Employee
Benefits Sub-Group, which is a part of the
Business Law Practice Group of Buckingham,
Doolittle & Burroughs, LLP. She
can be reached at
ldefilippis@bdblaw.com or
216.615.7345.
Tax Tip: Caution When Outsourcing Payroll
By:
David J. Lewis, Esq.
and
Andrew W. Bernat, Esq.
 Many
employers use outside payroll services to facilitate the
payment of employees. An employer deposits its taxes in
trust and expects the payroll service to pay the IRS on
its behalf and to prepare the required employer’s tax
returns. By agreement with the employer, the payroll
service must then remit the payroll deposits to the
federal, state, and local governments. A recent case
provides guidance on the employer’s risks with such an
arrangement. Additionally, the IRS has developed some
practical pointers that employers can use to safeguard
against such risks, including embezzling by the payroll
service.
In Pediatric
Affiliates, P.A. v. United States, No. 05-3108, 2006
U.S. Dist. LEXIS 9181 (D. N.J. Feb. 22, 2006), an
employer trusted an outside payroll service to remit
payroll tax deposits on its behalf to the IRS. The
employer’s payroll deposits, however, were embezzled by
the payroll service. The IRS assessed the amount of the
unpaid payroll taxes plus interest and penalties against
the taxpayer who was the victim of the payroll service’s
crime. The taxpayer then sought relief from liability
and penalties. Unsurprisingly, the Federal District
Court in New Jersey held the employer responsible for
the unpaid taxes. The Courteven imposed negligence
penalties against the employer for failure to adequately
supervise and protect the payroll tax deposits due to
the IRS.
Since the Court’s
decision, the IRS has developed a guide entitled
Outsourcing Payroll Duties Can be a Sound Business
Practice, but Know your Responsibilities as an Employer.
This guide offers the following suggestions to employers
who engage payroll services to make their payroll tax
deposits:
Employers should be
very cautious in dealing with outside payroll services
because the results of failure to adequately deposit
payroll taxes can be catastrophic. If you would like
additional information about the use of outside payroll
services, contact a member of Buckingham’s Tax Practice
Group.
Dave Lewis
is a
Shareholder in the Business Law
and Trusts & Estates
Practice Groups of Buckingham, Doolittle & Burroughs, LLP.
He can be reached at
dlewis@bdblaw.com or 330.258.6407.
Andrew Bernat
is an Associate attorney in the Business Law
Practice Group of Buckingham, Doolittle & Burroughs, LLP.
He can be reached at
abernat@bdblaw.com or 330.258.6504.
SEC Amendments Take Effect
By:
John F. Ballard, Esq.
 In
June 2005, the Securities and Exchange Commission (SEC)
adopted amendments to its rules with respect to the
registration, communications, and offering processes under
the Securities Act of 1933 (Securities Act). The final
rule facilitates access to capital markets by
well-established public companies, modernizes the existing
restrictions on corporate communications during a
securities offering, and further integrates disclosures
under the Securities Exchange Act of 1934 (Exchange Act)
and the Securities Act. At the same time, the final rule
addresses liability standards for prospectus disclosures,
as well as for shelf registration statements. The changes
became effective December 1, 2005.
The SEC’s final rule defines a
new class of issuers called “well-known seasoned issuers.”
These large, well-established issuers benefit the most
from the SEC’s reforms. Among other things, the final rule
provides for the option of automatic effectiveness upon
filing of shelf registration statements by a well-known
seasoned issuer (WKSI) with the option of “pay-as-you-go”
registration fees related to securities offered under that
shelf registration. WKSIs also are provided with the most
relief under the SEC’s communications reforms.
The SEC has defined a
“well-known seasoned issuer” as an issuer that has either:
• Worldwide market value of
$700 million or more of outstanding voting and non-voting
common equity held by non-affiliates of the registrant
(i.e., “public float”); or
• At least $1 billion aggregate
principal amount of non-convertible securities, other than
common equity, issued in registered primary offerings for
cash, not exchange, in the last three years.
Jay Ballard
is a
Partner in the Business Law
Practice Group of Buckingham,
Doolittle & Burroughs, LLP. He
can be reached at
jballard@bdblaw.com or 216.615.7323.
Duties to minority Shareholders in a
Closely Held Corporation
By:
Christopher M. Ernst, Esq.
 Minority
shareholders in closely held corporation can expect to be
owed a fiduciary duty by the majority shareholders.
Fiduciary duties arise out of a relationship that is based
on mutual trust, confidence, loyalty and good faith. They
require a person to act in good faith, with all due care
and with a sense of loyalty. Under Ohio law, it has long
been established that officers and directors of a company
owe fiduciary duties to the business that they serve.
However, the law is shifting to afford more and more
protection to minority shareholders to make sure that they
are not harmed by the pernicious actions of the majority
shareholders.
This shift started
several years ago when the U.S. Supreme Court recognized
that majority shareholders owed a fiduciary duty to
minority shareholders. Realizing that a close corporation
is a restrictive environment, because of the small number
of shareholders, the lack of a readily available market to
be able to sell shares, and the customary control by the
majority shareholders in the daily operations of the
business; the Supreme Court recognized that majority
shareholders had to be charged with the duty of “utmost
good faith” when dealing in matters that would affect the
minority shareholders.
This standard has
been slightly weakened over the years so as not to prevent
the majority shareholders from effectively managing the
business.
The Ohio Supreme
Court followed this basic line of thinking when it
recognized that minority shareholders could suffer damages
at the hands of majority shareholders that were separate
and distinct from those damages suffered by the
corporation. Prior to this shift, a minority shareholder
could bring an action only as a “derivative action” where
the shareholder, in effect, stood in the place of the
corporation. In the case, Crosby v. Beam (1989),
47 Ohio St.3d 105, 548 N.E.2d 217, the Court first
recognized that a minority shareholder could sue
individually, rather than on behalf of the company. This
case involved a minority shareholder who alleged that the
majority shareholders had acted improperly by paying
themselves u nreasonable
salaries, reimbursing themselves for personal expenses,
using company property for personal uses, purchasing life
insurance for their personal benefit, and taking improper,
low-interest loans from the company (thereby depriving the
corporation of interest income). Lastly, it was claimed
that all of these acts of wrongdoing were carried out
pursuant to a conspiracy between the majority
shareholders.
The Ohio Supreme Court ruled
that where “majority or controlling shareholders in a
close corporation breach their heightened fiduciary duty
to minority shareholders by utilizing their majority
control of the corporation to their own advantage, without
providing minority shareholders with an equal opportunity
to benefit, such breach, absent a legitimate business
purpose, is actionable. Where such a breach occurs, the
minority shareholder is individually harmed. When such
harm can be construed to be individual in nature, then a
suit by a minority shareholder against the offending
majority or controlling shareholders may proceed as a
direct action.”
As a result, minority shareholders received the ability to
stand up for themselves and fight back when the majority
shareholders started to abuse their powers.
In the end, Ohio recognizes that majority shareholders
have a heightened fiduciary duty to the minority
shareholders. Operation of a business to the exclusive
benefit of the majority shareholders – and the detriment
of the minority shareholders – is not permissible under
Ohio law. At Buckingham, Doolittle & Burroughs, LLP, we
have great experience in prosecuting and defending matters
involving the interrelationships between majority and
minority shareholders. We recognize that there are times
where significant differences in opinion may occur between
shareholders and that those differences may potentially
lead to illegal conduct. Prompt and efficient resolution
is necessary to make sure that everyone’s rights are
protected.
6504.
Christopher Ernst
is a
Partner in the Litigation
and Real Estate & Construction
Practice Groups of Buckingham,
Doolittle & Burroughs, LLP. He
can be reached at
cernst@bdblaw.com or 216.736.4216.
Check the "List" Twice! Are You
Forbidden from Transacting Business with Potential
Customers or Employees?
By:
Karen D. Butera, Esq.
No, it isn’t Santa’s
list that you must check…It’s the federal “Specially
Designated Nationals and Blocked Persons List.”
In response to 9/11,
and in furtherance of the war on terror, President Bush
issued an Executive Order on Terrorist Financing. The
Executive Order lists certain individuals as “blocked
persons,” and the law prohibits anyone from doing business
in any manner with these individuals. The law applies not
only to business transactions and employment, but also to
any type of personal transaction.
The Executive Order
encompasses all types of entities and relationships:
for-profit entities, non-profit entities, governmental
agencies, complex transactions, mundane transactions,
customers, clients, and even employees. The List is
located at the U.S. Department of the Treasury website,
www.treas.gov/ofac. The site also offers different
data file formats, allowing a lookup feature to be
interlinked with computer operations.
There are harsh
penalties for failure to comply with the regulations.
Fines can run up to $1 million dollars for unintentional
violations and $10 million, along with 10 to 30 years
imprisonment, for willful violations.
If the name you are
checking is a “hit” on the List, the law requires that you
must block the asset or reject the transaction and then
file a report within 10 business days. Records must also
be retained for at least five years.
More information can be found at
www.treas.gov/offices/enforcement/ofac.
Karen Butera
is an Associate attorney in the
Litigation
Practice Group of Buckingham,
Doolittle & Burroughs, LLP. She
can be reached at
kbutera@bdblaw.com or
330.491.5217..
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Mr. Ackerman is a Partner in the West Palm Beach office
and a member of the Litigation Practice Group. He is
temporarily serving clients out of the Boca Raton
office until the new office is ready.
Mr. Ackerman’s
practice is focused on civil litigation. He spent
five years as an assistant state attorney for Palm Beach
County, Florida.
Ms. Candido is a Partner in the West Palm Beach office
and a member of the Litigation Practice Group. She is
temporarily serving clients out of the Boca Raton
office until the new office is ready.
Prior to joining
the law firm, Ms. Candido was an Associate at Arnstein
& Lehr, LLP. She handles commercial litigation,
marital and family law, and corporate and
transactional work. Ms. Candido is a member of
the Palm Beach County Bar Association and is a member
of the Executive Committee of its Young Lawyers
Section.
Business
Law and Litigation Practice Groups,
Shareholder
Mr. Cooke
is a Shareholder in the West Palm Beach office
and a member of the Business Law and Litigation Practice Groups.
He is
temporarily serving clients out of the Boca Raton
office until the new office is ready.
Mr. Cooke is experienced in the corporate,
transactional and securities law areas, as well as in
the areas of commercial litigation, securities
arbitration, employment, and family law. He
has practiced in state trial courts in Florida, New
York and New Jersey and has appeared before the
American Arbitration Association and the National
Association of Security Dealers.
Litigation
Practice Group,
Partner
Mr. Turner is a Partner in the West Palm Beach office
and a member of the Litigation Practice Group. He is
temporarily serving clients out of the Boca Raton
office until the new office is ready.
Mr.
Turner’s practice is concentrated in complex
litigation, including toxic tort liability,
intellectual property protection, lender liability and
corporate and partnership dissolution.
His
litigation practice included both state and federal
courts along with private arbitration. In addition,
Mr. Turner represents clients in both corporate and
transactional matters, including trademark
registration and the negotiation of licensing
agreements, franchise agreements and lease and
terminal operating agreements.
Litigation
Practice Group, Associate
Ms. Van Hoy's practice is focused
in the areas of commercial and business litigation in
state and federal courts. She is a member of the
Ohio Women’s Bar Association (Community Service
Committee), American, Ohio State and Columbus Bar
Associations. Ms. Van Hoy is also a member of
Court Appointed Special Advocates (CASA) of Franklin
County.
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Kudos
 Richard
S. Milligan (Buckingham CantonSM),
bar counsel for the Stark County Bar Association, writes a
monthly article called, "The Ethics Corner" for the Stark County Bar Journal. The most recent
article featured the duty to report the misconduct of
other professionals.
 Brent D. Rosenthal
(Buckingham
ColumbusSM)
just finished year one of a 2-year term as Chairman of the
Columbus Bar Association (CBA), Real Property Committee.
He is also working on committees reviewing pro bono legal
work by Columbus lawyers, and CLE efforts for the CBA.
 George H. Rosin
(Buckingham AkronSM)
was featured in The Bath Herald for his
appointment to President of The Greater Akron Musical
Association (GAMA). GAMA was formed to promote quality
symphonic and chorale music through performances and
educational programs in the greater Akron area.
 Congratulations to
Amanda Walls
(Buckingham CantonSM)
for passing the Ohio Bar. Ms. Walls was a Graduate Law
Clerk for BDB before passing the exam. She will be working
in the Canton office as an Associate attorney in the
Employment & Workers’ Compensation Practice Group.
Speaking Out
Save the Date for these Upcoming Presentations:
May 31 -
Thomas Hess
(Buckingham ColumbusSM)
will be speaking
at an Ohio Health Care Association training seminar in
Columbus, Ohio. His topic will be "Advance
Directives."
June 8 -
Scott J. Topolski
(Buckingham
Boca RatonSM)
will be presenting at a NBI Seminar in West Palm Beach,
Florida. His topic will be "Successfully
Collecting Debts and Judgments."
June 15 -
Denise J. Bleau
(Buckingham Boca RatonSM)
will be speaking at a Lorman Education Services seminar in
West Palm Beach, Florida. Her topic is "What You Need to
Know About Public Records and Open Meetings."
June 22 -
Mark F. Craig,
Robert A. Hager,
Henry I. Reder
(Buckingham ClevelandSM),
Frederick M. Lombardi
(Buckingham
AkronSM)
and
John C. Ross
(Buckingham CantonSM)
will be presenting at a Lorman Education Services seminar
in Akron, Ohio. The seminar is entitled, "What to Do When
Construction Projects Go Bad in Ohio."
June 26 -
Gerald B. Chattman
(Buckingham ClevelandSM)
will be presenting at the National Buisness Institute
seminar called, "The New Age of Corporate Goverance for
Nonprofit Organizations."
July 11 -
Mark Frasure
(Buckingham CantonSM) and
Thomas Hess
(Buckingham ColumbusSM)
will be presenting at a Lorman Education Services seminar
in Akron, Ohio. Their topic is "Management of Medical Records in Ohio."
July 12 -
Brent D. Rosenthal
(Buckingham
ColumbusSM) will make a presentation at a Lorman
Education Services seminar in Columbus, Ohio. The seminar
title is Negotiating Complex Real Estate Transactions.
His topic will be "Due Diligence Aspects of Complex Real
Estate Transactions."
July 26 -
Nicholas T. George
(Buckingham
AkronSM)
and
David J. Lindner
(Buckingham
ClevelandSM)
will be presenting at a Lorman Education Services seminar
in Akron, Ohio. The title of the seminar is
"Condominium
and Planned Community Practice in Ohio."
September 13 -
Business Practice Group Seminar, Akron/Fairlawn Hilton,
Ohio. Details to come...
Out and About – Recent Presentations:
Business Practice Group
Steven A. Dimengo
(Buckingham
AkronSM)
spoke at a presentation titled "Advanced Sales and Use Tax
in Ohio" in Independence, Ohio.
Nicholas T. George
(Buckingham
AkronSM)
was the key note speaker at an annual event for
Entrepreneurship. He discussed the
entrepreneurial spirit and how he has gone from a single
practitioner to the president of the largest law firm in
Summit County. The event was held at the
University of Akron.
Employment & Workers' Compensation Practice Group
Brett L. Miller
(Buckingham
ColumbusSM)
made a presentation at the Education Day program
sponsored by the Central Ohio Self Insurers Association.
His topic was "Industrial Commission and Legislative
Update."
Tod T. Morrow
(Buckingham CantonSM)
spoke at the Ohio Safety Congress & Expo. His topic
was "Workers’ Compensation and ‘The Art of War’:
Successful Strategies for Controlling Workers’
Compensation Costs." Mr. Morrow also made a presentation
to the Stark County Safety Council. He discussed "How to
Manage Employees Without Fear of Safety-Related
Whistleblower Lawsuits."
Susan C. Rodgers
(Buckingham AkronSM)
made a presentation to the Stark County Human Resource
Managers. She discussed "Managing Employee Leaves ADA,
FMLA, and Workers’ Compensation."
Health & Medicine Practice Group
G. Brenda Coey
(Buckingham
CantonSM)
and
Thomas Hess
(Buckingham ColumbusSM)
spoke at the Menorah Park Center for Senior Living
Training Center in Beachwood, Ohio. Their topic was "Major
Issues Facing Long-Term Care Facilities." In addition,
they also presented at the Ohio Health Care Association
Annual Convention in Columbus, Ohio. They discussed "False
Claims and the Survey Process" and "Quality Assurance &
Facility Confidentiality."
Joe Feltes
(Buckingham CantonSM)
spoke at the 2006 AultCare Forum. His topic was
"The Other Pay-For-Performance." Mr. Feltes also made a
presentation to the Akron Chapter of the Society for Human
Resource Management. He discussed "Spam I Am — Not! The
Adventures and Misadventures of E-mail and the Internet."
He presented to AultCare. His topic was "AultCare—Business
Ethics: Right Here. Right for You!" Finally, Mr. Feltes spoke at
the Ohio State Bar Association’s Annual Convention. His
topic was "Spam I Am (Not): Adventures and Misadventures
Involving E-mail and the Internet. What It Means to Us and
Our Clients!"
Thomas Hess
(Buckingham ColumbusSM)
presented at a Lorman Education Services seminar in
Independence, Ohio. His topic was "How to Survive a
Government Audit." Mr. Hess also spoke at an Ohio Department of
Health Quality Assurance/Dementia Seminar in Columbus,
Ohio. His topic was
"Understanding Ohio’s Advance Directives Protocols."
Richard S. Milligan
(Buckingham CantonSM)
presented to the AultCare provider office
managers. His topic was "Medical Malpractice and Your
Physician Office Tips to Reduce Your Risk."
Jeffrey D. Weinstock
(Buckingham Boca RatonSM)
made a presentation to the Nova Southeastern University
Dental Program. His topic was "Legal Issues for New Health
Care Professionals."
Ronald Wilt and Robin Bravchok
(Buckingham ClevelandSM)
will be giving a presentation for the Northeast Ohio
Ultrasound Society in Independence, Ohio. Mr. Wilt
will discuss "Recent Changes in Malpractice Laws,
Including a Case Law and Legislative Update."
Ms. Bravchok's topic is "Basic HIPAA Issues."
Litigation Practice Group
Philip A. Duvalsaint
(Buckingham
Boca RatonSM) chaired a roundtable discussion on Film making at the
Delray Beach Film Festival in Delray Beach, Florida.
Real Estate & Construction Practice Group
Henry I. Reder (Buckingham ClevelandSM)
made a presentation to the Subcontractors Association of
Northeastern Ohio on "Legal Issues Critical to
Subcontractors."
John C. Ross
(Buckingham CantonSM),
Builders’ Exchange’s legal counsel, presented a
seminar on "Ohio Mechanics Lien Law and Surety Claims."
The seminar was held at the Builders’ Exchange Akron
facility.
Trusts & Estates Practice Group
Jeffrey A. Halm
(Buckingham
CantonSM)
spoke to the Stark County Medical Society.
His topic was "Risk Management and Asset Protection
Planning."
Philip R. Wiese
(Buckingham
AkronSM)
and
Hillary B. McLean
(Buckingham
AkronSM),
in conjunction with Dan Lauletta of Cleveland Financial
Advisors, also presented and participated in a roundtable
discussion at the "Money Matters Series," sponsored by the
Laurel Lake Retirement Community Foundation in Hudson,
Ohio. Mr. Wiese also presented a boutique seminar with
David W. Woodburn
(Buckingham
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