Insight Form 5500 Season is in Full Swing – Are Wheels Turning (or are they Spinning)?
By John C. Hughes,
The Form 5500 is an annual filing made with both the U.S. Department of Labor (“DOL”) and Internal Revenue Service (“IRS”). Form 5500 must be filed by most retirement plans (such as 401(k) plans) and many health care plans. Both DOL and IRS have the ability to impose significant penalties for incorrect, incomplete, or delinquent filings. Additionally, DOL and IRS utilize this form, in part, to determine which plans to further investigate based on; for example, entries that are not in accordance with the detailed instructions or perhaps just do not make sense.
Some reminders and considerations to assist in decreasing your chances of winning the DOL or IRS “audit lottery” include:
- The plan sponsor employer signs Form 5500 under penalty of perjury swearing as to its accuracy and completeness. As such, it is advised to have confidence in its accuracy and completeness. The involvement and review with your professional advisors should increase this confidence.
- For preapproved 401(k) plans, ensure the correct opinion letter serial number is entered on Schedule R. This is a relatively new requirement; I have encountered missteps.
- Late deposits – make sure they’re late before you report them as such. Sometimes they are not late, or sometimes the issue is confused with the qualification failure referred to as “missed deferrals.” If there is a late deposit issue, try to correct before filing the Form 5500 so you may report on the required attachment that correction was accomplished. Plans that report having not corrected are more likely to garner attention than those who report that the matter was corrected.
- There are a few versions of the Form 5500. Be sure to use the right version.
- Don’t miss the filing due date, as penalties could be significant. This involves lining up the form’s preparer and auditor (if an audit report is required) and ensuring all are focused on the due date. If the filing is going to be late, consider participation in the DOL’s Delinquent Filer Voluntary Compliance program (which has certain eligibility conditions including in general that participation in the program must be accomplished before the DOL notices the deficiency or non-filing and imposes a more significant penalty in the normal course).
- Some of the options for entries on the form include a description that says “other.” Before using that option, best to ensure that there is not a better choice among the other options that are more descriptive. For example, under the Schedule C service codes, there are approximately 50 descriptors/codes to choose from before the need to resort to “other.”
- Report plan name or plan sponsor name changes. Similarly, use current addresses. It seems there is little tolerance for mix ups where DOL sends a letter to an old address and the DOL imposed response time is missed by the responding employer plan sponsor.
- Double check participant counts, and look for anomalies. For example, was there a large increase or decrease reported over a period of one day? If so, did it really happen, and if so why?
- Confirm your plan year end dates relative to plan mergers and terminations. This is the date that drives “final” filing due dates. The legal date of the plan merger is the trigger relative to a plan merger; not the date assets moved (which is typically later). The date that plan assets were fully distributed is the trigger relative to a plan termination; not the declared termination date (which is typically earlier).
In summary, the status of Form 5500s should be ascertained, and drafts carefully reviewed and considered prior to filing.
This blog 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.
