Non-Exempt (Prohibited) Transactions & Financial Statement Disclosure

Non-Exempt (Prohibited) Transactions & Financial Statement Disclosure

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Has your 401(k) Plan recently been audited by the “Employee Benefits Security Administration” of the U.S. Department of Labor?  If yes, have they identified any Non-Exempt (prohibited) transactions?

For detail on what constitutes a Non-Exempt (prohibited) transaction, please review “Instructions for Schedule G” Form 5500, Financial Transaction Schedules” of the Instructions for Form 5500 – Annual Return/Report of Employee Benefit Plan,  available on either the Internal Revenue Service or U.S. Department of Labor websites.  You can also contact Henry & Horne for additional guidance or questions.

What are your responsibilities as Plan Administrator in reporting Non-Exempt “prohibited” transactions in your 401k’s “Form 5500 Annual Return/Report of Employee Benefit Plan” filing, and financial statements (assuming your plan qualifies to file Form 5500 and financial statement(s).

Form 5500 Reporting Requirements;
Generally, schedule G to the Form 5500 should be included and should provide the appropriate information for the reader to understand the prohibited transaction(s).  Additionally, the prohibited transaction needs to be classified in one of the following three categories: a) Schedule of Loans of Fixed Income Obligations in Default or Classified as Uncollectible, b) Schedule of Leases in Default or Classified as Uncollectible, c) or Nonexempt Transactions.

The Plan Administrator should consider contacting a qualified Form 5500 preparer for assistance in filling out the Schedule G and other schedules to the Form 5500.  Henry & Horne has qualified Form 5500 preparers who would be able to assist with most Form 5500 filings.

Financial Statement Requirements:
The financial statements are required to include a supplementary schedule to report the information included in Schedule G to the Form 5500.  The supplemental schedule should generally include all the information included on the Schedule G to the Form 5500.  Additionally, the financial statements generally must include disclosure of the facts and circumstances for the readers to understand the prohibited transactions and the status of issues(s).

For more information on Non-Exempt (prohibited) Transactions, feel free to contact me by responding to this blog, or contact Henry & Horne, through our website links “About us: contact us”

Victor Fuentes