We wrote in August about a system error that resulted in a significant number of plan sponsors receiving erroneous penalty notifications related to Form 8955-SSA. After raising the issue with the service, they sent a newsletter informing sponsors that no action was needed for anyone who received the 8955-SSA late filing letter dated before Sept. 1, 2023.
A related issue has recently come to our attention. The IRS’s systems are designed to ensure that a taxpayer owed a refund does not owe other taxes or penalties before the refund is paid to the taxpayer.
Although the IRS confirmed it will correct the erroneous penalties on its end, at least some plan sponsors who received an erroneous 8955-SSA notice are now having a portion of their corporate tax return withheld to “satisfy” the 8955-SSA penalties.
We have been in touch with representatives from the IRS about the new issue, and they are working on a resolution. Our members have reported that if the plan sponsor calls the number on the refund notice, they are told the amount withheld cannot be refunded until the penalty is waived or abated.
Plan sponsors may wish to respond to the refund notice and reference the Sep. 1 Employee Plans Newsletter. In the meantime, members are also welcome to contact Kelsey Mayo ([email protected]) for assistance with specific notices their clients have received.
Background
Form 8955-SSA is a required annual filing with the IRS for those who must file Form 5500 with the Department of Labor. The filing deadline for Form 8955-SSA is the same as Form 5500.
The form is used to report information related to each participant who separated from service with a deferred vested benefit but who did not receive full distribution of their benefit.
“One issue that has arisen is that according to some, plan sponsors sometimes neglect to update reporting on the forms for subsequent distributions, which may result in notification to participants of benefits that do not actually exist anymore,” ARA Chief Legal Officer Allison Wielobob explained.
The Form 8955-SSA information reported to the IRS is shared with the Social Security Administration. At retirement age, the SSA notifies affected individuals that they may have benefits under the retirement plans of prior employers.
