If you file Form 5500 incorrectly, it can lead to penalties. Learn more about the annual report here.
Like many other small employers, you probably offer health insurance and a retirement plan. But did you know that you likely must file Form 5500 with the United States Department of Labor (DOL) and the Internal Revenue Service (IRS)? Not filing the form as required can lead to severe penalties. Therefore, it’s important to know and honor your Form 5500 obligations.
What is Form 5500?
Form 5500 helps the DOL and IRS determine whether employee benefit plans are operated and managed according to government standards.Form 5500 refers to a series of employee benefit plan forms that are jointly developed by the DOL, IRS, and the Pension Benefit Guaranty Corporation.
Applicable employers with qualified retirement plans or health and welfare plans must use Form 5500 to satisfy annual reporting requirements under the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA).
Form 5500 helps the DOL and IRS determine whether employee benefit plans are operated and managed according to government standards. To meet this objective, Form 5500 requires filers to provide essential information— including financial, compliance, and participant information.
Who must file Form 5500?
Most ERISA-covered retirement plans must file Form 5500 annually, including 401(k) plans, pension plans, profit sharing plans, and some 403(b) plans. If your small business offers a 401(k) plan, chances are you must file a Form 5500 each year.
A few retirement plans are exempt from ERISA filing requirements and therefore do not have to file a Form 5500. For example:
- One-participant plans — which cover only the business owner and (if applicable) their spouse — are exempt from filing Form 5500 up until the plan assets reach at least $250,000.
- Top hat plans are exempt from filing Form 5500, but they must submit a “statement” to the DOL. Top hat plans are unfunded pension plans that are designed for highly compensated employees or a select group of management.
Health and welfare benefit plans
Per the American Institute of Certified Public Accountants, health and welfare benefit plans include plans that offer:
- Medical, dental, visual, psychiatric, or long-term health care
- Severance benefits
- Life insurance
- Accidental death or dismemberment benefits
- Unemployment, disability, vacation, or holiday benefits
- Apprenticeships, tuition assistance, daycare, housing subsidies, or legal services benefits
- Post-employment benefits, such as salary continuation, supplemental unemployment benefits, disability-related job training, and counseling
All ERISA-covered health and welfare plans that are funded through a trust must file Form 5500, no matter how many participants are in the plan. Additionally, health and welfare plans that are unfunded/self-insured (i.e., benefits are paid from the employer’s general assets) or insured (i.e., premiums are paid directly to the insurer) must file Form 5500 if they have 100 or more participants at the start of the plan year.
Let’s say (like most employers) you pay for health insurance via premiums to the insurer. In this case, you must file a Form 5500 for your group health plan only if the plan has 100 or more participants.
Certain health and welfare plans are exempt from Form 5500 filing requirements, including:
- Plans that are unfunded, fully insured, or partially insured and have fewer than 100 participants
- Governmental and church plans
- Benefit plans that are kept only to comply with unemployment insurance, workers’ compensation, and disability insurance laws
Many employers, including small businesses, hire a third party provider to help with benefits administration and Form 5500 filing. Ultimately though, the responsibility of ensuring that the form is filed correctly rests with the plan administrator (which is usually the employer/plan sponsor). Utilizing the right form is key to achieving accuracy.
What are the different types of Form 5500?
The Form 5500 series consists of:
- Form 5500, Annual Return/Report of Employee Benefit Plan. Known as the “regular” Form 5500, this version is for retirement plans and health and welfare plans with 100 or more participants.
- Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. Known as the “short form,” this version is for retirement plans and health and welfare plans with fewer than 100 participants.
- Form 5500-EZ, Annual Return of A One-Participant. This form is for retirement plans that cover the business owner and (if applicable) their spouse. The DOL says that starting January 1, 2021, one-participant plans can no longer use Form 5500-SF, only Form 5500-EZ.
Larger plans filing Form 5500 must typically undergo yearly audits, conducted by an Independent Qualified Public Accountant (IQPA). Smaller plans filing Form 5500-SF or Form 5500-EZ usually do not have to be audited.
How (and when) to file Form 5500
- Forms 5500 and 5500-SF must be filed electronically through ERISA Filing Acceptance System II (EFAST2).
- Form 5500-EZ can be filed electronically through EFAST2. You may file a paper Form 5500-EZ (with the IRS) if you’re not required to comply with IRS e-filing rules,
Forms 5500, 5500-SF, and 5500-EZ are due by the last day of the 7th month that comes after the end of the plan year. You can apply for a filing extension of up to 2.5 months by completing and submitting (to the IRS) Form 5558, Application for Extension of Time to File Certain Employee Plan Returns.
Forms 5500, 5500-SF, and 5500-EZ are due by the last day of the 7th month that comes after the end of the plan year.
Noncompliance comes with a price
The penalties for violating ERISA Form 5500 filing requirements are not only hefty but also adjusted yearly for inflation.
For 2021, the ERISA penalty for failing to file a timely Form 5500 is $2,259 per day. The IRS may charge a separate penalty of $250 per day (up to $150,000 annually). These penalties apply to Forms 5500, 5500-SF, and 5500-EZ.
Voluntary compliance program for late filers
If you fell behind on your Form 5500 filing, you may be able to redeem yourself plus save on the cost of civil penalties.
The DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) enables employers that did not file their Form 5500 on time to correct the error voluntarily plus pay a reduced penalty to the DOL. Moreover, the IRS usually waives late-filing penalties for employers that self-correct via the DFVCP.
The DFVCP gives late filers a chance to voluntarily bring themselves back into compliance. But to qualify for reduced civil penalties under the DFVCP, you must file the required Form 5500 prior to the date that the DOL notified you in writing about your failure to file the form on time. For this reason, It’s important to file your late Form 5500 as soon as possible, before the DOL notifies you about the issue.
Additional Form 5500 resources
You can also contact the DOL’s Employee Benefits Security Administration directly for assistance.
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