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Clearing Up Form 5500 Confusion

Clearing Up Form 5500 Confusion

| July 05, 2023

Attention: Retirement Plan Sponsors! It is essential to stay current with the ever-changing world of employer sponsored retirement plans. Changes occur regularly, so keeping up can help your plan avoid substantial penalties. The Form 5500 Series is an important reporting tool required of retirement plans and this article will take you on a brief tour of its basic elements.

What is Form 5500?

Form 5500 provides participants, beneficiaries, the Internal Revenue Service (IRS) and the Department of Labor (DOL) with information about the retirement plan. Retirement plans, such as 401(k) plans, must annually file the version of the form applicable to their plan. This is true even if the plan is terminated, but still holds plan assets and has one or more participants!

Three forms cover the spectrum; large plans with 100 or more participants file Form 5500 along with applicable schedules, smaller plans file Form 5500 – SF (Short Form), and plans with only one participant, e.g., solo 401(k) plan, file Form 5500-EZ. An audited financial statement is usually required along with Form 5500 if the plan has 100 or more participants.

Why is it necessary?

It is required by regulatory agencies to enable employee benefit plans to satisfy annual reporting requirements under Title I and Title IV of ERISA (Employee Retirement Income Security Act of 1974) and the Internal Revenue Code. Form 5500 is an important compliance, research and disclosure tool for the regulators and the private sector.   

The 5500 is part of the ERISA reporting and disclosure framework to ensure that employee benefits plans are operated and managed within prescribed standards. In addition, it ensures that participants and beneficiaries, as well as regulators, have access to sufficient information to protect everyone’s rights and benefits.

When is the Form 5500 due?

Form 5500 and any accompanying schedules must be filed with the Employee Benefits Security Administration (EBSA) on or before the last day of the seventh month following the close of the plan year. This is generally July 31 for calendar-year plans. Extensions can be requested. Filing on a timely basis demonstrates fiduciary responsibility and avoids costly penalties. 

Are there penalties?
Civil monetary penalties for noncompliance are stiff and are adjusted annually. ERISA violations can carry penalty amounts in the thousands of dollars per day and IRS penalties for late filers are up to $250 per day, with some penalties capped at a maximum level.

Who can help with the filing?

EBSA has established a Help Desk at EFAST2, the site where all forms must be uploaded. That toll-free number is 866-463-3278. You can visit their website for instructions, too. Fortunately, the record keeper or third-party administrator (TPA) serving the retirement plan navigates most of the process to complete and file the form on your behalf. However, the plan sponsor that signs the form is still ultimately accountable for its accuracy and timeliness.   

In addition to the Form 5500 filing requirements, TPAs, such as Paradigm Benefits, LLC based in Waverly, commonly perform a series of annual tests to check the procedures and components of the plan to ensure compliance with rules such as those related to:

  • Improperly favoring highly compensated employees
  • Contributions and benefits within statutory limits
  • Assets used exclusively for the benefit of participants
  • Employee contributions remitted to the plan timely.

If you are responsible for a plan, there are plenty of rules and processes to know and follow, including properly filing Form 5500. Thankfully, you don’t have to navigate them alone when you partner with professionals.