In addition to the many other local, state, and federal filings, businesses with benefits plans may be required to file an annual Form 5500 to report their pension and welfare plans' financial condition, investments, and operations. Late filings, unfiled reports, and incomplete filings can expose the company to significant fines from the IRS and the Department of Labor.
The IRS, Department of Labor (DOL), and Pension Benefit Guaranty Corporation developed the Form 5500 return for employee benefit plans to comply with annual ERISA and IRS reporting requirements. Plan administrators generally have until the 7th month after their plan year ends to file the Form 5500. Plan administrators can generally request an IRS extension for an additional 2 ½ months to file their Form 5500.
Failure to correctly file a Form 5500 can result in expensive fines, calculated from the date the plans were due. The DOL's maximum penalty for failure to file a Form 5500 is $2,063 per day for violations that occurred after November 2, 2015, and penalized after August 1, 2016. If a plan administrator has failed to file Form 5500s for multiple years, the penalties may be cumulative. Additionally, there is no statute of limitations for delinquent Form 5500 filings.
For example, if a company failed to file a conforming Form 5500 for 1989 and 2016, the company would be assessed a daily penalty at the rate of up to $1,100 per day on the 1989 late filing. The company would also be assessed an additional penalty of up to $2,063 per day for the 2016 filing.
More companies now use an insurance broker or third-party administrator to prepare their annual Form 5500 filings. As a result, plan administrators may take it for granted that their company's Form 5500 is prepared correctly and filed on time. Companies who have never prepared their own Form 5500 may also be unaware if the filing is correct and contains all the necessary information. However, it is ultimately the plan sponsor and plan administrator who are responsible for the company's Form 5500 filing.
The good news is the Department of Labor has a voluntary compliance program which allows delinquent 5500 filers to avoid or reduce their late filing penalties. The Delinquent Filer Voluntary Compliance Program (DFVCP) is a program designed to encourage plan administrators to file overdue 5500 reports. Eligible plan administrators who qualify can pay reduced penalties under the program if they are made prior to notice by the DOL of a failure to file a timely annual report.
To qualify under the DFVCP, administrators need to electronically file a complete Form 5500 or Form 5500-SF, including all schedules and attachments for each delinquent year. The form has a box labeled DFVC program to be checked. The plan administrator should then use the online calculator to determine the correct penalty amount and mail a check or make an electronic payment in that amount.
The IRS will also generally waive late filing penalties for filers who satisfy the requirements under the DOL's Delinquent Filer Voluntary Compliance Program, file any missing 8955-SSA forms, meet the requirements for penalty relief, and mail the necessary documents within 30 days after completing the DFVCP filing.
If you have any questions about Form 5500 filings, late filings, or delinquent filer compliance, contact, contact your benefits and ERISA attorneys at Butterfield Schechter LLP. We are San Diego County's largest firm focusing its law practice on employee benefits. Our firm can help you maintain compliance with ERISA regulations, avoid tax and DOL penalties, and represent you in ERISA litigation. Contact our office today with any questions on how we can help you and your business succeed.