Form 5500 is late? That's $1,100 per day
Employers face Thursday deadline for employee benefits plans.
The annual deadline to file a report with the Department of Labor concerning retirement, health and welfare plans is quickly approaching for employers operating on the calendar year.
Employers with existing employee benefit plans that miss the July 31 deadline to file Form 5500 may be subject to a penalty of up to $1,100 each day the form is late, with a cap of $4,000 per form for each benefit, through the Delinquent Filer Voluntary Compliance program.
The late summer deadline applies to all employers that operate on a calendar-year basis and offer certain health, retirement and welfare plans to employees, according to Grand Rapids law firm Miller Johnson.
Developed in collaboration among the U.S. Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corp., the Annual Returns/Reports of Employee Benefit Plan — or Form 5500 series — is used to meet reporting requirements through the Employee Retirement Income Security Act, or ERISA, and the Internal Revenue Code.
The 1974 ERISA Act protects individuals with pension and health plans in the private industry sector by establishing a minimum of standards required for the employee plans, such as the provision or sufficient access to information to protect the rights and benefits or participants and beneficiaries.
Trip Vander Wal, an associate in the Grand Rapids office of law firm Miller Johnson, said Form 5500 is a way for sponsors of various employee plans to report information to the Department of Labor about that specific plan.
“What we find is typically employers with a retirement plan, like a 401(k) plan, are very familiar with the Form 5500 requirement because they are usually getting a form audit every year and then their accounting firm is assisting them in filing the Form 5500,” said Vander Wal. “On the other hand, certain health and welfare plans are also subject to this Form 5500 requirement, and we often find that employers are not aware.”
There are two main exceptions to the requirement in terms of health and welfare plans: if fewer than 100 employees are enrolled in the plan at the beginning of the plan year, and if the health or welfare plan is non-ERISA, such as being sponsored by a governmental or church employer.
Vander Wal said another mistake made by plan sponsors is being unaware of the requirement to file separate forms for each health and welfare option, unless a “wrap plan” is in place.
“The number one is the fact that they don’t realize — plan sponsors or employers — that they may also have to file a Form 5500 with respect to their health and welfare plan,” he said.
“If you have what we call a ‘wrap plan,’ this basically wraps around all of those benefits and allows one Form 5500 to be filed for all those benefits. If I have six or seven different welfare benefits I provide to my employers, then theoretically I could have to prepare and submit up to six or seven different Form 5500s for each benefit.”
Employers or plan sponsors are required to submit the Form 5500 within seven months after the end of the plan year, with an extension period of an additional two and a half months if an application is filed by the Form 5500 deadline.
The annual deadline depends on when the benefit plan year operates; however, most benefit plans tend to follow the calendar year, which results in the July 31 deadline, Vander Wal said. If an employer fails to file a Form 5500 before the deadline for their employee benefits, the Department of Labor may subject the plan sponsor up to a $1,100 per day penalty for each form.
“It is potentially a very big penalty; however, I haven’t seen in my career that penalty has been enforced to that severity level,” said Vander Wal. “The potential is obviously still there.”
The Delinquent Filer Voluntary Compliance Program, provided by the Department of Labor, allows employers or plan sponsors to file late forms, which limits the amount of fiscal penalty to which the business is exposed through the cap of $2,000 per form, with a limit of $4,000 for multiple years.
“The goal of the program is to get plan sponsors or employers to voluntarily come in and say, ‘I made a mistake, I didn’t file these Form 5500s,’” said Vander Wal. “If you have a number of different years where you have failed to file, your penalty is going to be at most $4,000 with respect to each benefit. If you compare it to the $1,100 per day, you don’t have to go many days before you have crossed that $4,000 maximum under the DFVC program.”
The DFVC program reduces the financial penalty for late forms to close to $10 per day for most health and welfare plans, but once the Department of Labor notifies a plan sponsor of missing the deadline, the employer is no longer eligible to participate in the program.
An employer can file an application for an extension pushing the deadline back to Oct. 15 by submitting File Form 5558 with the IRS, or by qualifying for an automatic extension through meeting requirements with the plan sponsor’s tax return.
The requirements include: the plan year and the employer’s tax year are the same; the plan sponsor has been granted an extension to file an income tax return after the Form 5500 deadline; and through maintaining a copy of the application for extension of to file with its federal income tax return.