Insight Form 5500 and Other Retirement/Benefit Plan Reminders and Developments

It is that time of year again. The IRS Form 5500 for calendar year retirement and welfare plans is due to be filed by July 31. Some reminders and related developments are as follows:

• The due date may be extended if Form 5558 is properly filed with the IRS by the due date. I stress IRS because I have encountered several providers who advise clients that the extension is filed with the Department of Labor (“DOL”). That is not the case, and will not result in an extension. It is a good idea to keep proof of filing the extension as well; such is often overlooked.
• The information entered onto a Form 5558 should match the Form 5500 and the plan (for example, employer name, plan name, employer identification number, plan number, etc.).
• Carefully review the draft Form 5500 (and audit report, if such is required) with counsel for completeness, accuracy, and understanding, and recognize it is your filing made under penalty of perjury; not that of a service provider who may have populated the form (and thousands of others). Incomplete and/or inaccurate reporting could lead to the imposition of penalties, and/or trigger IRS or DOL investigation. A government examination will be much more burdensome than ensuring a clean filing.
• Regarding audit reports, there is a misconception that audit of the financial statements by an independent CPA is an overall examination of a plan and its compliance status. An auditor might sample some compliance issues and/or instances of late deposits; however, the process is not a comprehensive analysis of a plan’s legal compliance.
• It seems that some auditors are getting out of the plan audit business and/or are scaling back that work. Be sure to check in with your auditor to confirm they will in fact be performing your audit this year. Additionally, there are new audit report requirements in effect this year; as such, you may expect the auditor to ask for additional information this year (and in the future) and for the report to look different.
• Review and filing of the Form 5500 presents a good opportunity to assess overall plan compliance and to identify problems so they may be addressed. Employers are encouraged to find and fix mistakes under the IRS’s correction program. The failure to do so may result in the IRS identifying a qualification failure first, at which point, monetary penalties may apply in addition to corrective actions. Accordingly, the “head in the sand” approach is not a good strategy. In this respect, there is a relatively new version of the correction program set forth in IRS Revenue Procedure 2021-30. The Revenue Procedure contains detail on how to correct qualification failures, including some new methodologies relative to some common failures, such as those relating to automatic enrollment and missed deferrals.
• Consider issues relative to controlled group status, multiple employer plan status, etc. Those issues must be reported accurately on the Form 5500, but more importantly, could profoundly affect plan design and operations.
• Be sure that appropriate reporting is being made relative to health reimbursement arrangements, flexible spending accounts, and severance plans.
• Another important July 31 due date is the requirement for preapproved defined contribution plans (that is, 401(k), profit sharing, and money purchase plans) to amend and restate onto a newly approved “Cycle 3” plan document. If you maintain a preapproved defined contribution and have not yet accomplished this task, contact your document provider immediately. Of course, be sure to maintained signed and dated versions of your plan documents (including older ones) with your permanent records. Additionally, qualified retirement plans must be amended to reflect SECURE Act and CARES Act by year end.

In summary, avoid winning the audit lottery by ascertaining the status of your Form 5500 preparation, and carefully review the draft with appropriate advisors taking into consideration overall plan operations and compliance to avoid qualification failures (or to timely take actions if such failures have occurred to mitigate the issue).

This article is provided by Hawley Troxell Ennis & Hawley LLP for educational and information purposes only. It is intended to notify our clients and friends of certain events or issues. It is not intended to be, nor should it be, used as a substitute for legal advice regarding specific factual circumstances. © Hawley Troxell Ennis & Hawley LLP all rights reserved.