December 14, 2021
IMPORTANT RETIREMENT PLAN REQUIREMENTS YOU NEED TO KNOW!
Form Fifty-Five Hundred (Form 5500) and the Astronomic Penalty
There are many compliance reports and procedures to be aware of to effectively maintain a retirement plan for your business. One important report is called the “form fifty-five hundred and the title of this report is known as the Form 5500 – Annual Return/ Report of Employee Benefit Plan.
This particular form is an annual requirement of the Internal Revenue Service (IRS), the Department of Labor (DOL), and the Pension Benefit Guarantee Corporation (PBGC).
The Form 5500 is actually a series of forms depending upon the design and characteristics of your retirement plan. The government considers this form as:
A compliance, research, and disclosure tool,
A disclosure document for plan participants,
A source of information and data for use by Federal agencies,
A report to assess employee benefit, tax, and economic trends and policies.
Annual Requirement (Includes all the following items)
Form 5500 filing requirement
The form is due July 31st and is the deadline for calendar year plans or seven months after the plan year end. An extension to Oct 15 maybe applied for.
The form must be filed electronically by the employer through DOL website (EFAST2).
Plan Information Requirement
Plan information for compliance testing includes the following:
12 months of payroll data or W-2 salary
Plan investment reports and statements
Contributions made during the year
Distributions made during the year
Other changes that affect plan operations, etc.
When employers do not provide timely Plan Information needed for compliance testing this affects completing Form 5500 and meeting the deadline.
Waiting for a few days or weeks to provide plan information before the final deadline is a recipe for disaster. If the data isn’t accurate or thoroughly completed, the form can be considered as late, and this can create financial penalties.
What Happens If Form 5500 is Not Filed in a Timely Manner?
The Internal Revenue Service (IRS) has a $250 a day penalty up to a maximum of $150,000 if you miss the deadline of July 31st. In addition to the IRS penalty, the Department of Labor (DOL) has a $2,259.00 a day penalty with no limit. We generally only see the IRS penalty, thank goodness, but these fees can be extremely steep!
Employers that do not have a TPA maybe unaware of this requirement. We have seen plans established with stock brokerage firms and banks; however, they do not manage retirement plan administrative compliance. Therefore, no Form 5500 is ever completed, and this isn’t a brokerage house or bank’s fault, as they are not TPAs.
If you have not signed an agreement with a bank or stock brokerage that says they manage Form 5500, you will be in trouble and the cost will be significant.
The Department of Labor (DOL) has a program for employers that discover they haven’t filed timely. It is called the Delinquent Filer Voluntary Compliance Program (DFVCP). You can avoid the penalty by paying the DOL a fee to catch up on the delinquent filings. However, this needs to be done before the DOL contacts you regarding the missing form.
If you do not have a TPA or provider engaged to complete the Form 5500 you should engage someone to help you with this important form. It is your responsibility under the law and completion of the form is not done automatically.
As your TPA, Benefit Equity Inc. requests information such as payroll/W-2 data and investment statements and we strongly encourage you to do your best to provide it as soon as you can.
If you are not sure what information is needed or how to compile the data, please call one of BEI’s plan administrators for assistance as we are here to help.
Author: Robert Gorelick, APA, and Founder Benefit Equity Inc.