Nuts & Bolts: Form 5500s

1) What is a Form 5500?

“Form 5500 is the form,” says Zachary Keep, manager of compliance risk at Paychex Inc. “It’s the vital signs for the retirement plan. It’s going to touch on the overall financial status of the plan, look at what are the loans like, what are the turnaround times, are you depositing the employees’ contributions.”

According to Keep, the 5500 is a tri-agency form involving the Department of Labor, Internal Revenue Service, and Pension Benefit Guaranty Corporation. The form is required by the Retirement Income Security Act of 1974 pursuant to titles one and four. There are several different types of 5500s that are tied to the size of the plan and who owns the plan.

“For example, if you’re a smaller employer, you’d file one type of 5500 while a larger employer with more than 100 employees files another type,” he says. “Then there’s the very creatively named 5500-EZ, for what is often called a ‘single owner plan,’ where it’s the owner, spouse of an owner or someone along those lines.”

Keep says anybody who sponsors a retirement plan that is covered by ERISA has to file a Form 5500. This includes plan sponsors of retirement plans such as 401(k)s, pension plans, profit sharing plans as well as health and welfare plans. Plan sponsors generally hire third-party administrators to help their human resource teams file the 5500.

“I imagine accounting firms get into [filing] as well,” Keep says. “I talk with a lot of CPAs that do this or at least consult and assist. I would say those are probably the two. If I’m a standalone single employer plan I’m looking to my accountant to start with.”

2) What do I need to know about the Form 5500 as a retirement plan adviser?

Ronald Ulrich, vice president of product consulting and compliance at ADP Inc.’s retirement services division, says all plan advisers should be aware of the filing requirements of the Form 5500. The task only happens once a year, and occasionally plan sponsors put the form aside and forget to file.

“Advisers are in a good position to help counsel their clients about making sure that they understand that we need to file this form every single year,” he says. “They understand the fact that it needs to be done timely and it needs to be done accurately. The adviser isn’t actually preparing it or filing for it, but they can be a good resource to help sponsor with their responsibilities.”

Kyle Bonds, director of the benefit consultants division at Warren Averett, says the Form 5500 is due seven months following the end of the plan year, but for calendar year plan the deadline would be July 31. There is an extension that can be requested to extend the due date two and a half months, for a total of nine and a half months following the plan year; for a calendar year plan, the deadline can be extended to October 15.

3) How does the Form 5500 relate to my clients and business?

Form 5500s have real implications for plan sponsors. If they file incorrectly, they may have a greater chance of an audit and the costs associated; meanwhile, late filing carries automatic monetary penalties.

“There’s actually pretty steep penalties if [the Form 5500] is not filed on time,” says Ulrich. “It’s up to $250 a day, so it’s very important that they’re filed and filed timely.”

He notes that if an employer does have an issue and the form isn’t filed before the deadline, the DOL has a correction program called the delinquent filer voluntary correction program.

“[The plan sponsor] can say ‘Oops, we made a mistake,’ then pay a user fee rather than fine and correct any past filings that have been made,” he says. “That might also be another opportunity where advisers can help get their clients back on track and keep them on track.”

4) What are common misperceptions of, or mistakes made, when dealing with Form 5500s?

Bonds says there’s a lack of knowledge in the health and welfare plans when it comes to Form 5500 requirements. For employers offering an employer pay life insurance for every employee, they have a filing requirement if coverage exceeds 100 employees.

“That’s probably the biggest issue I’ve seen the past few years,” he says. “Probably 15 to 20 clients a year coming to us with late 5500s on their health and welfare plans.”

Keeps also clarifies that for employers who don’t want to be very involved in the Form 5500 filing process, a pooled employer plan isn’t the only option. If an employer has DOL signing credentials, they could hire a third-party administrator and accounting firm.

“Just from my industry experience, there are often specialized consultants whose bread and butter is ‘I will come in and prepare and file the 5500 on your behalf,’” he says. “It’s a big industry and there are many ways of getting the form done for you if you don’t want to do it yourself.

5) What does the future look like for the Form 5500?

Ulrich says that starting in 2023 the DOL only counted the number of employees with a balance at the beginning of the year to determine if the plan was subject to the audit. As a result, many plan sponsors that had to have an audit in the past will no longer need to.

“It’s good and bad,” he says. “I think it’s good when plans are audited because it helps make sure that things are running correctly, but there’s an expense and a lot of times the expense of the audit is borne by the employer or the participants. This would make it a lot less expensive for plan sponsors going forward if they no longer have to subject the plan to those audit requirements.”

Advisers can also anticipate additional compliance questions for 2023, along with requests for prototype and document information, which will probably be expanded over time, according to Bonds.

“I think expansion questions might alleviate unneeded or unwarranted IRS audits on these plans,” he says. “Providing additional information to those governmental entities could help them make a more informed decision on potential audit targets, which in turn increases the importance of partnering with educated plan adviser.”