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July 31 Form 5500 Deadline Reminders

Filers needing more time should request an extension, keep penalties in mind

July 16, 2021 | Stephen Miller, CEBS

A pen is being used to fill out a tax form.

July 31 is the deadline for sponsors of calendar-year benefit plans to file Form 5500, Annual Return/Report of Employee Benefit Plan, with the IRS. Plan sponsors can request an extension to Oct. 15 by filing Form 5558, Application for Extension of Time to File Certain Employee Plan Returns.

Form 5500 and related instructions or, for smaller filers generally with fewer than 100 participants, Form 5500-SF (short form) and instructions, are used to report the financial conditions, investments and operations of benefit plans. Annual forms are filed for:

Retirement and savings plans, such as defined benefit pension plans and 401(k)s or similar defined contribution, profit-sharing and stock bonus plans.

Health and welfare plans, such as medical, dental, life insurance and disability benefits plans.

Typically, the form is due on the last day of the seventh month after the plan year ends—July 31 for calendar-year plans—with an optional two-and-a-half-month extension.

In addition, Form 5500-EZ is the annual information return filed by one-participant retirement plans (covering owners and their spouses), such as a Solo 401(k), with plan assets of more than $250,000 as of Dec. 31 of the prior year.

[Want to learn more about benefits compliance? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]

Electronic Filing

Electronic versions of Form 5500 and related documents are available on the federal government's EFAST2 website, which is also used to file these forms with the IRS.

Administrators or sponsors of employee benefits plans subject to the Employee Retirement Income Security Act must file information about each benefits plan every year. Some plans with fewer than 100 participants are exempt from filing an annual return or report under certain conditions, as detailed in the exempt from filing sections of the forms' instructions.

[SHRM members-only HR Q&A: What is Form 5500, and where are instructions for completing it?]

Penalties

Overlapping penalties for failing to timely file Form 5500 by July 31 (or, with a Form 5558 extension, by Oct. 15) are imposed by the Department of Labor (DOL) and the IRS, the agencies that use the information related to the annual reports.

For penalties assessed after Jan. 15, 2021:

The DOL per day penalty for failure to properly file Form 5500 has increased to $2,259 from $2,233, with no maximum.

The IRS can also assess a penalty for late filers up to $250 a day, up to a maximum penalty of $150,000 per plan year.

"Plan sponsors with late 5500s should file through the DOL's Delinquent Filer Voluntary Compliance Program (DFVCP)," advised Ary Rosenbaum of the Rosenbaum Law Firm in Garden City, N.Y.

"The DOL penalties under DFVCP are reduced from $2,259 per day to $10 per day," he noted. In addition:

Penalties for small plans (generally under 100 participants) are capped at $750 for a single late Form 5500 and $1,500 for multiple years per plan.

Penalties for large plans (generally 100 employees and over) are capped at $2,000 for a single late Form 5500 and $4,000 for multiple years per plan."

Common Errors

"Disconnects between payroll procedures, and the way that your 401(k) plan defines 'compensation' for purposes of salary deferrals and employer contributions, generate a significant number of plan operational failures" for retirement plan Form 5500 filings, blogged Christine P. Roberts, an employee benefits attorney with Mullen & Henzell in Santa Barbara, Calif.

"The best recommendation I can make to avoid compensation-based errors in operating your 401(k) plan is to use Form W-2, Box 1 as your plan's definition of compensation, with no exclusions (other than gift cards or cash rewards, if your company uses them)," she advised. Also, she recommended "to regularly revisit your payroll codes and procedures to make sure that all pay items that appear in Box 1 are counted for purposes of participants' salary deferrals and loan repayments."

Other frequent complications during Form 5500 preparation, Roberts noted, include eligibility errors, as "when plans exclude employees based on schedule or job category, such as part-time employees, temporary employees, and per diem employees," and permitting employees to participate before they have met eligibility criteria.

Form 5500 Reporting Tips

"The statements and assertions on the Form 5500 are made by the employer who signs the filling under penalty of perjury, not the service provider who may have populated the draft," noted John C. Hughes, a partner in the Boise office of Hawley Troxell.

Hughes highlighted the following tips to lessen the chances of examination or the imposition of penalties:

Maintain appropriate proof of having filed the Form 5500 (and the extension Form 5558). Doing so can help to shortcut any discussions with the IRS or DOL over whether you timely filed.

Ensure that the plan name, employer name, tax ID number, etc., are consistent on the Form 5500, Form 5558 and the plan documents. Often, there is an inconsistent use of service provider names as well.

Attach an appropriately completed independent audit report, if necessary. Not all plans must attach an audit, but if you are in that group, it must be included. The DOL is especially concerned about poor audit reports that raise red flags.

Do not attach random documents to the Form 5500 that are not required. A large service provider recommend that an employer attach its annual "404a-5" participant fee disclosures, as well as the "408(b)(2)" fee disclosures that were made to the employer. Those disclosures are important and must be made to participants and the employer, but they should not be filed with the Form 5500.

Exercise caution in reporting late deposits. Accuracy is key, as is identifying and appropriately correcting the issue as soon as possible. This is an issue that is high on the DOL's list of concerns and priorities.

Understand the Schedule C entries. The information here might not only garner unneccessary IRS or DOL attention, but also could provide a road map to prospective plaintiffs who may file a class action against an employer relative to plan fees.

"Review of the Form 5500 presents an excellent opportunity for a self-plan assessment/audit relative to plan document issues and operations," Hughes advised.

[update: 7/23/21]

Proposed Rule Lowers Threshold for Mandatory E-Filing of Form 5500

On July 23, the IRS issued a proposal to reduce the threshold by which employers filing Form 5500 must do so electronically. The threshold will be reduced from 250 to 100 returns for the 2022 calendar year. For filings required after calendar year 2022, the threshold will be further reduced to 10 returns.

Information returns affected by the proposal include, but are not limited to, Form 5500, Form 5500-SF and Form 5500-EZ.

Filers that are unable to file electronically (for instance, due to a lack of Internet service) may request a waiver from the IRS.

Comments may be submitted to the IRS through Sept. 21, 2021.