Pension plans must file reports with the Treasury Department on investments made with offshore hedge funds and private equity firms, in a new requirement causing an uproar among ERISA attorneys.
What's worse, pension plan officials might have to amend their personal income tax filings for the past five years to include such information, on the theory that they have authority over plan investments.
“It's a huge deal for pension plans,” said Jennifer Eller, an ERISA attorney for Groom Law Group, Washington.
“This has left the market in an extreme state of uncertainty,” added Andrew Oringer, an ERISA attorney at Ropes & Gray LLP, New York.
These reporting requirements stem from a new interpretation by Treasury officials of the department's Report of Foreign Bank and Financial Accounts form, known as FBAR, which is geared to catching money launderers and tax evaders.
The FBAR reporting obligation has been in effect since the early 1970s. But according to attorneys, the obligation previously has been believed to apply only to investments by U.S.-based individuals and corporations with more than $10,000 in offshore accounts, such as those run by banks and securities firms, and not to pension plan investments.
Through changes in the instructions to the FBAR form — and in a series of frequently asked questions and statements from IRS officials starting late last year — the Treasury Department has been beefing up the reporting obligation to include investments through offshore hedge funds and private equity firms. These are investments commonly made by pension funds.
The attorneys said the changes are being spurred by the federal government's effort to crack down on offshore tax evasion and money-laundering schemes.
But the regulation appears to require pension plans, plan investment committee members — and plan trustees — to file individual FBAR reports on the plan's investments with offshore managers. In addition, the current IRS interpretation of the rule appears to require pension plan officials to amend plan reports and their personal income tax filings to provide details on the plan's offshore investments over the past five years.
The reports for 2008, the first year affected by the enhanced reporting obligations, were originally due June 30 this year. But the IRS has given filers who were unaware of the full extent of their reporting obligation until Sept. 23 to file the reports.
At the same time, the IRS has agreed to consider public comments on the enhanced reporting obligations through Aug. 31.