Form 5500 Annual Reporting—The plan administrator must prepare a Form 5500 annually for each ERISA plan that an employer sponsors in order to report certain information to the DOL. The deadline for filing is 7 months after the end of the plan year. A 2-1/2 month extension is available by filing a Form 5558. Form 5500 records must be maintained for not less than six years. The DOL requires that all Form 5500s for Plan Year 2009 and later must be filed electronically.
Form 5500 Exemptions—the rules are complicated, but generally, unfunded plans and fully insured plans which cover fewer than 100 participants on the 1st day of the plan year are not required to prepare and file a Form 5500 with the DOL for that year. Note—this exemption may be lost if a plan sponsor does not disclose how insurer refunds are allocated. This can be problematic because many small employers do not prepare and distribute an SPD containing this language, nor do they file a Form 5500, relying on the small plan exemption. However, failure to prepare and file Form 5500 by the deadline can result in a DOL penalty of up to $2,140 per day.
Even though dependents may be considered participants for other purposes, only participating employees are counted for this purpose. Former employees covered under COBRA and Severance Pay Plans are also counted. Employees who waive coverage are not counted. Also, unfunded plans to which employees do not contribute are not required to prepare and file a Form 5500 with the DOL. Other Form 5500 filing exemptions include employer-sponsored day care centers, apprenticeship and certain other training programs, and plans benefitting a select group of management or high-level employees.
A funded plan that accepts participant contributions is generally not eligible for a complete exemption. However, there is a special rule for a cafeteria plan that accepts participant contributions. It will be treated as unfunded for Form 5500 purposes, provided that (1) plan assets from participant contributions would be the sole reason the plan would otherwise be considered funded, and (2) if participant contributions are made for an insured plan, they are forwarded directly to the insurer as soon as they can be segregated from the employer’s general assets, and the employer has a policy governing the allocation of insurer refunds.
DOL Penalties—The plan administrator is subject to DOL penalties of up to $2,140/day for each ERISA plan Form 5500 which is late, incomplete, or not prepared and filed at all. The responsibility for filing cannot be contracted away. To put this penalty into proper perspective, assume an employer has four separate plans (e.g., a life, a medical, a dental, and a disability plan), and it prepared and filed a Form 5500 for each plan 45 days late. This employer could face a DOL penalty of $371,340! ($2,140/day x 45 days x 4 plans)
A willful violation may result in a criminal penalty of $100,000 or imprisonment for 10 years, or both. Knowing misrepresentation or concealment of facts required to be disclosed by the plan administrator are punishable by a fine up to $10,000 or imprisonment for up to 5 years. A DOL penalty cannot be treated as a plan administrative expense.
Fortunately, the DOL does have a Delinquent Filer Voluntary Compliance Program that offers a reduced penalty, but this program cannot be used once the DOL finds the employer’s error through an audit or investigation. Thus, it is easy to see how having a Wrap–Tightsm document is extremely helpful in mitigating a potential deadline penalty.
Summary Annual Report (SAR)—a summary of the Form 5500 information which must be furnished automatically to participants each year that an annual Form 5500 is filed (except for totally unfunded plans, regardless of size). The SAR must be prepared and delivered to participants and beneficiaries who receive SPDs. The deadline is 9 months from the close of the plan year, plus two months extension, if the Form 5500 was extended. The DOL can impose a penalty of $156/day (capped at $1,566 per request) for failure to respond to a request for an SAR, and there could also be a criminal penalty for willful violations.
Note: A DOL Form 5500 deadline penalty applies to each benefit plan. Each penalty is cumulative and there is no statute of limitations for these violations.
Erisa Pros will prepare and file Form 5500s electronically utilizing approved software through the DOL’s EFAST2 system.